Our June 11th blog post broadly discussed arbitration and the upward trend of including mandatory arbitration clauses in agreements. This week, we analyze the pros and cons of arbitration to elucidate when arbitration clauses are useful and when they are potentially harmful.
In arbitration, individuals and entities bring legal claims against one another outside the public court system. Although many aspects of arbitration are similar to a civil court trial, arbitration has a number of key differences.
Speed – Arbitration is generally faster than litigation. Whereas litigation often takes years, the arbitration process may only take a few months. However, arbitration can take longer when there are multiple parties, arbitrators, or when complicated legal issues arise.
Selection of Arbitrator – In arbitration the parties are typically permitted to select the individual who decides the outcome of their case. The parties can mutually agree upon an arbitrator, or a third party service can assign an arbitrator. This varies from a civil trial where a judge would be assigned to preside over the matter by the court system.
Finality – Arbitration rulings can rarely be appealed. The finality of arbitration keeps the parties from spending additional money on legal fees and allows the parties to move forward with their lives.
Simplified Procedures – Unlike civil judges, who are often constrained by statutory requirements and limitations, arbitrators have more freedom to craft individualized awards. This autonomy allows arbitrators to issue awards which seek to achieve a sensible and equitable result based on the highly individualized facts and circumstances of each case. Arbitration is also not bound by the rules of civil procedure. The rules of discovery, evidence, and general procedure are often streamlined to encourage a speedy process.
Confidentiality – Confidentiality is a significant reason individuals and businesses opt for arbitration. Arbitration hearings are not held in open court, there are no public records filed, and the transcripts are not available as public record. Settlements are also typically kept confidential in arbitration hearings.
Cost –Generally arbitration is less expensive than litigation, and in simple cases that holds true. But, in cases involving “non-binding” arbitration, the cost can be quite significant. In non-binding arbitration the final award is not binding and the parties are able to return to litigation to resolve the dispute. Additionally, the parties are tasked with paying the arbitrator’s fees for his or her time. Arbitrations can last several days or weeks, and experienced arbitrators generally charge by the hour. The arbitrator’s fee and attorney’s fees can quickly accumulate over the duration of the arbitration.
Speed –In simple cases you can expect an arbitration to proceed faster than litigation. However, the interest in expediting the dispute resolution process may result in hampering an attorney’s ability to fully try their case. For example, some arbitrations may limit the amount of discovery questions one may ask or the number of depositions one can take. While this results in saving time and legal fees, it may prevent a party from discovering potentially helpful evidence.
Location – Most arbitration clauses include verbiage regarding the location (i.e. the city or state) for the arbitration. Typically the location is more convenient for the plaintiff, allowing them to maintain “home turf”. The location selected can require taking time from work to travel and can increase associated fees for the defendant.
Finality – Arbitration awards are only appeal-able in very limited circumstances. Accordingly, the losing party is unlikely to have an opportunity to appeal the award. In civil litigation there are numerous circumstances permitting the disgruntled party to appeal an unsatisfactory judgement.
No jury – Arbitration does not occur in the presence of a jury. For many people it is difficult to leave the decision of their case, in the hands of one person, trusting the decision will be equitable.
If you have questions regarding arbitration or other legal issues, please call us at (704) 457-1010 to schedule a consultation. For more information regarding our firm, attorneys, and practice areas, please visit http://www.lindleylawoffice.com/.