What Are the Advantages and Disadvantages of Arbitration?
Arbitration can be a simpler, faster, more peaceful, and less expensive option than litigation.3 min read
What are the advantages and disadvantages of arbitration? Arbitration can be a simpler, faster, more peaceful, and less expensive option than litigation. However, the process is not subject to the same rules of evidence and discovery as a court case. This can raise questions of fairness and transparency.
What Is Arbitration?
Arbitration involves settling a legal dispute without going to trial. Going to trial can be expensive and time-consuming, meaning arbitration can be advantageous to many people.
During arbitration, a third party listens to both sides of a legal disagreement. With the documents provided and the oral statements of each person involved, the arbitrator will issue a resolution. Witnesses will sometimes be called in to provide an oral statement.
Arbitration can be a great way to avoid legal costs, but careful consideration is required to determine whether or not arbitration is useful for a specific legal case.
Types of Arbitration
Arbitration is most commonly used in the following scenarios:
- Labor disputes
- Business/consumer disputes
- Family law matters
Once an arbitrator has made their decision, the legal outcome is final and cannot be appealed. Many contracts have a specific arbitration clause, meaning that arbitration is a requirement.
Advantages of Arbitration
There are many advantages to arbitration:
- Fairness: Both parties agree to the arbitrator, resulting in a fair outcome, especially when compared to a traditional legal trial in which neither party has control over the jury or judge selection. Parties can also agree to choose an arbitrator that has experience in their specific area of legal dispute.
- Timeliness: A legal resolution through arbitration is much quicker than waiting for a trial date. Arbitration is less formal and more flexible in terms of scheduling. The discovery process is a simple phone call, cutting down on much of the traditional trial process.
- Cost: Arbitration does not include expert witnesses or require as much legal preparation. Both parties often split the cost of the arbitrator, meaning the process is much cheaper.
- Confidentiality: The arbitration legal process is more private than a trial.
- Finality: There is a level of finality to the arbitration process. Because it cannot be appealed, both parties can move on following the outcome.
- Agreeableness: Arbitration often results in an agreeable outcome, as parties are encouraged to come up with a solution together.
- Simplified Procedures: Legal outcomes are more adaptable to the two parties present in the dispute. Each party does not have to hire an attorney for representation.
Once an arbitrator is chosen, they will select the date, time, and location of the arbitration. A general timeline consists of three to six months from the filing of the arbitration to the final payment date. American Arbitration Association (AAA) rules state that any claim under the amount of $75,000 can be fast-tracked to be completed even faster. Under a fast-track arbitration, the arbitrator sets a hearing date within 30 days of the legal claim.
Disadvantages of Arbitration
There are also some disadvantages of arbitration to consider:
- No Appeals: The arbitration decision is final. There is no formal appeals process available. Even if one party feels that the outcome was unfair, unjust, or biased, they cannot appeal it.
- Cost: While arbitration is generally a more cost-efficient legal settlement option, it might not make sense in cases when minimal money is involved.
- Rules of Evidence: A judge in a traditional court setting has specific regulations to follow when it comes to accepting evidence. Arbitrators, however, can utilize any information that is brought to them.
- Lack of Cross-Examination: The arbitration process generally includes documents and not witnesses, voiding the ability to cross-examine.
- Limited Discovery: In the event that arbitration is not filed until litigation has already begun, both parties lose the cost-saving advantage of limited discovery.
- Lack of Consistency: There are no set standards for arbitration, making it difficult to find consistency. It is possible that an arbitrator can be biased, which is sometimes the case in mandatory arbitration contracts.
- Lack of Evidence: Because arbitration is not evidence-based, you entrust the experience of the arbitrator to make the right legal decision.
- Not Public: The level of confidentiality involved in arbitration cases could potentially be disadvantageous to one party. There is also a lack of transparency, which is not the case in public courtrooms.
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