The Pros and Cons of Arbitration

At the beginning of a legal dispute, parties should review the business contract to see if  an arbitration clause is included. Arbitration is a private method of legal conflict resolution where a dispute is submitted to one or more arbitrators instead of a judge.  Unlike a dispute in court, the parties select the arbitrator(s), and also pay the fees of the arbitrator(s). The arbitrator renders an arbitration award to conclude the dispute. Unless an exception applies, the arbitration award cannot be appealed, but it can be enforced in court. In Texas, you may be required to arbitrate if the contract has an arbitration clause. Organizations must understand the potential positives and negatives of the arbitration process. Read below to understand the pros and cons of legal arbitration and how the Dallas law firm of Ritter Spencer Cheng PLLC can help parties involved in a legal dispute make the right decision for their business.

The Pros of Arbitration

  1. Time
    • Going through traditional legal systems to address conflicts can be time-consuming. Many court calendars are currently backed up with numerous cases, especially as a result of the COVID-19 pandemic and its impact on jury trials. Depending on the nature of the dispute, a conflict may take several years to be concluded. Arbitration is usually a quicker process with less discovery, saving businesses time that could be used elsewhere. The speediness of arbitration is an important consideration to many businesses, but arbitration does have drawbacks. To ensure that arbitration is the best way to resolve a dispute, parties need to work with an experienced team of attorneys and determine the full effect of the arbitration clauses in their business contracts.
  1. Confidentiality
    • Parties might want to resolve their issues outside of the public court system to address disputes more discreetly without public exposure. Arbitration proceedings are private. Generally, only the arbitration award is filed of record, and then, generally only when enforcement is required or a challenge to the arbitration is brought.

  2. Flexibility
    • Although arbitration is a formal process, the proceedings can offer more flexibility than traditional court proceedings. It depends on the arbitration rules and the arbitrator selected by the parties. Two organizations the American Arbitration Association (AAA) and Judicial Arbitration and Mediation Services (JAMS) provide for most arbitration services and have their own procedural rules. Traditional rules of evidence usually do not apply in arbitration proceedings. Additionally, arbitration hearings can be conveniently scheduled based on the availability of the parties and the arbitrator(s), rather than depending on the mandated schedule of a public court.

The Cons of Arbitration

  1. Implicit Biases & Fairness
    • An impartial arbitrator is ideal during arbitration proceedings; however, this intermediary could be biased if he/she is appointed by one party and may benefit one group over the other. Because arbitrations do not rely on juries to make decisions, a final resolution is made by the arbitrator(s) alone, and the decision may be affected by biases, whether unconscious or intentional.

  2. Finality
    • An arbitration proceeding’s finality is likely to be positive for the party that benefits from the arbitrator’s decision; however, if a party feels like the decision is unjust, they may not have many options available to address their concerns. Arbitration proceedings are considered binding and unless the arbitration agreement provides for an appeal, neither party can appeal the decision . There are, however, some limited exceptions to require a court to vacate an arbitration award. These exceptions do not generally go to the process of the arbitration but to a misrepresentation by the arbitrator prior to the selection.

  3. Potential Costs
    • While some may believe that arbitration is less costly than traditional litigation, this may not always be the case. There are many fees associated with arbitration proceedings. One or both parties pay the arbitrator’s fees, which are generally set at an hourly rate.  Parties will also be required to hire an experienced business attorney. However, parties that prioritize having reliable representation and maximizing flexibility set themselves up for arbitration proceedings to go smoothly.

Hiring an attorney to represent you or your business during an arbitration proceeding can ensure you receive the necessary guidance throughout the process. Commercial litigation attorney David Ritter has over 25 years of legal experience in business litigation, business restructuring, and bankruptcy. From individuals and family-owned businesses to Fortune 500 companies, the team at Ritter Spencer Cheng provides unique insight for every case. Contact us for more information.