Arbitration in business disputes lets different parties submit a dispute to an arbitrator for a final and impartial decision. All agreements should specify a method for resolving disputes. Businesses that choose arbitration must include the location of the court, designate which state will enforce the agreement, and decide how attorney fees will be divided between the parties. Arbitration or mediation is an excellent alternative to expensive litigation. Some contracts and employment agreements even make arbitration mandatory. Most business disputes are resolved by voluntary negotiation, litigation in state or federal courts, mediation, or arbitration.

How Arbitration Works

In arbitration, there's no formal discovery process, and legal rules of evidence don't apply. The arbitrator will ask for relevant documents and submit an opinion after reviewing the case. Both sides can present their case, but there are usually no witnesses. Court litigation is a much longer, more formal process. It's more involved and expensive, but you can appeal the verdict. Arbitration decisions are final.

Businesses in different countries can settle disputes with international arbitration. An intermediary like the International Chamber of Commerce facilitates the process. Most of these arbitrations take place online. Over 140 countries are part of the New York Convention to enable the enforcement of agreements and awards across borders.


Mediation is not legally binding, and it's private and confidential. An objective, third-party mediator helps different parties explore alternatives. The parties sometimes separate and caucus or talk separately with the mediator's guidance. Mediation is often used to resolve disputes before litigation or arbitration is needed. It's less expensive than a long, costly trial. Both parties share the cost. Resolving disputes quickly can help you preserve business and personal relationships. Unlike arbitration, either party can withdraw at any time.

Mediation is very useful for settling disputes, especially after the discovery process for litigation gives both parties all the facts. It's also useful when the situation is ambiguous in arbitration. The mediator may propose creative solutions or accommodations for both parties.

Arbitration Procedures

If arbitration is the chosen method for resolving disputes in a contract, everyone who signed must use it, even if they would rather use litigation. You should read every contract, including updates for existing agreements, and refuse to sign if you want to avoid arbitration and retain your right to a lawsuit. Sometimes, you can negotiate to have an arbitration clause removed before you sign a contract.

The courts enforce arbitration clauses and all other elements of contracts. Many contracts include the name of an arbitration organization to supervise the proceedings and the location where the dispute will be resolved. Most arbitrations follow the same basic steps as a court trial:

1. Both sides make an opening statement.
2. The plaintiff presents its case with testimony and documents.
3. The defendant cross-examines witnesses.
4. The defendant presents its case with documents and witnesses.
5. The plaintiff cross-examines the defendant's witnesses.
6. Both sides present closing arguments.

The Benefits of Arbitration

Unlike courtroom judges, arbitrators often:

• Ask questions
• Advise lawyers on what evidence to present
• Allow a wider range of evidence, like written statements
• Work on evenings and weekends

Discovery is usually restricted to exchanges of documents and witness lists. This eliminates expenses from depositions unless both parties agree to them. Arbitration is private. Until a motion to enforce an award is entered in the civil court, there's no public record of the dispute. Unlike civil trials, the public can't attend. Both parties can even agree to keep the terms of the resolution confidential. However, arbitration is becoming more expensive as more experienced lawyers participate. A well-known arbitrator can charge three to four thousand dollars per day. Most parties hire their own lawyers as well.

Using arbitration is still less costly than litigation. It's quicker and less complicated than going to court. Arbitration usually costs about half as much as a trial. According to a study from the Federal Mediation and Conciliation Services, an arbitrated case takes an average of 475 days, while a similar court case can take 18 months to three years. Trials must be scheduled around overcrowded court calendars, but arbitration hearings can accommodate the needs of individuals. They can even take place during evenings and weekends.

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