• What is Arbitration? Advantages and Disadvantages.

    Arbitration is a form of alternative dispute resolution. It is primarily used to resolve disputes between an employer and employee (or union) without going to court. The disputing parties offer their case to a third party arbitrator (or arbitration panel) who makes a decision based on the evidence presented. It is preferred that the arbitrator is someone who is knowledgeable and perhaps even has practical experience in labor and employment law. The decision made by the arbitrator is one that is based off of relevant, governing legal principals. Arbitration presentations are meant to prove one side right and the other side wrong. Typically, the parties agree to be bound by the arbitration decisions made, which are referred to as arbitration awards.

    Nearly all legal disputes can be reviewed in an arbitration hearing. Parties can enter into a contract with one another and include an arbitration agreement. The arbitration agreement or arbitration clause, will generally state that any dispute arising between the parties during the contract term must be resolved through arbitration. Sometimes, arbitration clauses are agreed to by both parties as a part of the forming of the contract. However, there are other instances where arbitration can be a part of “boiler-plate” language inserted within contract terms that have not actually been discussed. Typically, these arbitration clauses can appear in fine print within contracts for consumer goods or in lengthy agreements. For example, when someone purchases a computer software program, there is a licensing agreement that will appear upon loading the program. This agreement is generally long and contains various clauses; among them may be an arbitration clause. Once a user click’s “Agree” to the terms and conditions, the user has signed a contract (virtually) and has agreed to have disputes heard in arbitration. Arbitration cannot be agreed to, however, if the party submitted its agreement while under duress or if the agreement is seen as unfair to one party.

    Advantages to Arbitration

    There are several advantages to using arbitration. The first advantage is the flexibility afforded to the parties who are in arbitration. Most often, the adversaries can choose their own arbitrator. At the very least, disputants may choose a third party who will then choose an arbitrator for the hearing. Arbitrators may be in the legal profession, but they do not have to be. Sometimes a chosen arbitrator can just be an expert in the specific field that the arbitration is involved in. This is especially useful when compared to litigation because a judge may not have expertise in the chosen field and parties certainly cannot choose their own judges for litigation. Another advantage to arbitration is that it is a much quicker process than litigation. Litigation can be a long process that only increases in length when the ruling is appealed. Arbitration awards are binding and cannot be appealed. Eliminating a lengthy process is also beneficial because it eliminates post-resolution costs that could have otherwise occurred. Third, arbitration is a private matter. There is an informality to the hearings that allows the parties and the arbitrator to go about the dispute without presenting information to the public sector. This helps businesses especially because they avoid giving away any potential trade secrets or information that may be confidential.

    Disadvantages to Arbitration

    Despite the advantages, arbitration does also have its flaws. The nature of arbitration as an adversarial process means that both parties cannot “win.” The arbitrator will award the winner and the loser will not receive any benefit. This can be a positive, of course, for the winner. However, relations between the parties may become sour because of this. Also, parties may often be completely unaware that they have agreed to arbitration in the first place. The disadvantage here is that a party (especially a consumer) may not feel that their rights are being preserved when they were placed in a position they were unaware that they would be in. Likewise, the agreements may be instituted by a larger, more powerful legal entity that may have more control over the situation. If a large firm includes an arbitration clause in its agreements and there is no provision allowing for the recovery of attorney’s fees, this can amount to a huge burden on a party that does not have the backing of the large firm. By submitting the disputes to arbitration, parties simultaneously waive their rights to litigation. Therefore, a party may find itself at a disadvantage when he or she cannot appeal a decision or feels that the arbitrator is unjust. Sometimes, arbitration clauses may provide for relief that may not be any better than relief that could be provided for through litigation.
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