What is Arbitration?
Arbitration is a form of alternative dispute resolution (ADR) in which an arbitrator or a panel of arbitrators renders a decision to resolve a dispute between parties. The arbitrator is a neutral third party who plays a role similar to that of a judge. However, the arbitration process is more relaxed and informal. Arbitration is generally a more efficient and less costly process than taking a dispute to trial.
Is Arbitration Binding?
Arbitration may be binding or non-binding. Binding arbitration means that the arbitrator’s decision, with limited exceptions, is final. The arbitrator basically acts as judge and jury and the parties must abide by the decision. In non-binding arbitration, the parties may abide by the arbitrator’s decision. However, the parties are not bound by the decision, and a party who is dissatisfied with the arbitrator’s ruling can pursue other remedies, such as filing or proceeding with a lawsuit. Due to the lack of finality, non-binding arbitration is rarely used.
Arbitration agreements are agreements to go to arbitration whereas mediation agreements are actual settlement agreements.
What is an Arbitration Agreement?
Typically, arbitration is agreed to in some agreement that arises before the dispute itself such as an employment agreement or purchase/rental agreement wherein the parties “agree” to waive their right to a jury trial and submit disputes to a binding arbitration. It can be agreed to by parties after a dispute arises in either binding or non-binding form–but this is less common.
What are the Advantages of Non-Binding Arbitration?
Non-binding arbitration is a way to get some insight as how an independent third-party may view the case. It is very difficult to step outside of your situation when you are personally involved in a dispute. You see your position so clearly that it can be difficult to recognize when the other side’s argument has some merit too. This gives you the ability and opportunity to reevaluate your position and valuation of the case before it is too late.
What are the Disadvantages of Non-Binding Arbitration?
The disadvantages of non-binding arbitration are:
- It costs time and money to prepare and present a trail that you cannot get back if it does not help.
- Because it is non-binding, the other side does not have to accept the result when it favors you.
- Arbitrators typically charge both sides several thousands of dollars for their time.
What is the Arbitration Process?
Whether arbitration is binding or non-binding, the process is the same. The arbitrator will be selected in the manner agreed to by the parties, and will preside over and provide the rules and procedures for the arbitration process.
An arbitration hearing is similar to a trial, in that the arbitrator or panel listens to statements from the parties, reviews evidence, hears witness testimony, considers reports or testimony from experts, and renders a decision based on that evidence. However, it often takes place in a conference room vs a courtroom. Usually, the party who bears the burden of proof presents their arguments first. If the arbitration is binding, the arbitrator or panel will issue a ruling which is enforceable in court.
The key difference between this process and a courtroom trial is that the rules are relaxed. For example, evidence may be submitted to the arbitrator that might not be admissible in court, because the party lacked a technical foundation for the evidence or faced some other procedural obstacle. While a judge might rule the evidence inadmissible and not consider it or submit it to the jury, the arbitrator receives the evidence and makes a decision about how much weight to afford it.
What is My Role in Arbitration?
As a party your role will be to testify as a fact witness. Arbitration will proceed similar to a trial only the arbitrator will act as judge and jury to decide the outcome of the case.
What is My Lawyer’s Role in Arbitration?
Your lawyer will act as an advocate on your behalf just as if you were in a trial. Your lawyer will make an opening statement and a closing argument, offer evidence, call witnesses, and cross-examine defense witnesses. In the end, your lawyer will tell the arbitrator what relief you are asking for. If the case is a personal injury matter, your personal injury lawyer will explain the types of damages you are claiming and provide a roadmap for how the final number should be calculated. The defense will either urge the arbitrator to award nothing at all on a basis of no liability, or they will argue for some alternative damage calculation.
What is the Difference Between Arbitration and Mediation?
Mediation is another type of ADR, and it is not unusual for the terms “mediation” and “arbitration” to be confused, or the lines between the two processes blurred. Mediation differs significantly from arbitration, in that a mediator does not consider any evidence and make a ruling, or even recommendation. Instead, a mediator attempts to facilitate an agreement between the parties. Any resolution that arises out of mediation is strictly voluntary and is the result of a compromise between the parties.
What are Mandatory Arbitration Clauses?
A mandatory arbitration clause is a provision in a contract that requires the parties to the agreement to waive their right to sue one another in the event of a dispute and, instead, to submit their dispute to an independent third-party arbitrator. In order to reduce the cost lawsuits bring, many companies write mandatory arbitration clauses into their contracts. They can be commonly found in credit card agreements, service and lending agreements, and even employment contracts.
Arbitration has received some attention from the press over the past few years, as individuals and watchdog organizations alike have sought to bar or invalidate mandatory arbitration clauses in a variety of contexts. The Consumer Financial Protection Bureau (CFPB) even issued a rule that would block major corporations such as large credit card issuers from using mandatory arbitration clauses to prevent consumers from joining together to bring class-action lawsuits against the companies. Many consumer protection organizations have argued that mandatory arbitration clauses make it difficult or impossible for consumers to effectively assert their rights.
What are the Advantages of Arbitration?
Arbitration offers several advantages when parties choose to make use of the process. For example:
- When the issue to be resolved is technical or requires specialized knowledge, the parties can choose a qualified arbitrator rather than relying on a judge who may not have the appropriate expertise.
- Because of the relaxed rules of presentation and evidence, arbitration may be less time-consuming and less expensive than trying a matter before a court.
- The parties may choose to have the arbitration proceeding closed, and the evidence and testimony submitted during an arbitration hearing is not a matter of public record.
Problems with arbitration are more likely to arise when one party has far less bargaining power than the other, as in the case of consumer contracts which not only mandates arbitration but may limit the options for choosing an arbitrator to services that regularly do business with and have a financial stake in maintaining good relations with the company.
Do I Need an Attorney for Arbitration?
The more relaxed nature of the arbitration proceeding makes it easier and more inviting for a party to proceed without an attorney. However, there are several reasons that a party—particularly an individual or small business owner—might want to consider hiring an attorney to represent him or her in arbitration:
- A party who is unfamiliar with the legal process may overlook important evidence, inadvertently weakening his case.
- Although the arbitrator will gather and consider all evidence, the clarity and organization with which it is presented will impact his or her perception of the case.
- If the other party is represented by an attorney or is a corporate representative accustomed to arbitration, the individual may find himself at a disadvantage in the proceeding.
- Arbitration involving employment contracts tends to be very complex and requires compliance with strict rules. Failure to adhere to the rules can result in a waiver of rights.
If you are considering arbitration or are facing mandatory arbitration of a dispute, consulting with an experienced attorney in advance will better equip you to make good decisions about how to proceed, including whether you may need legal representation at the arbitration hearing.
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