Arbitration is a way to settle disputes outside of the courtroom. Rather than going through a lengthy, expensive legal battle, two parties agree to have a neutral third party—an arbitrator—hear both sides of the argument and make a final decision. What distinguishes arbitration from court cases is that it’s more private, often quicker, and flexible. Once the arbitrator makes a decision, it’s usually final, meaning both parties must follow through with it.

Many businesses prefer arbitration over litigation for these reasons. Whether it’s a dispute with a customer, supplier, or even an employee, arbitration offers a way to resolve problems without the time and cost that comes with court cases.

Key Characteristics of Arbitration

Arbitration has a few key elements that make it stand out from traditional courtroom disputes:

It’s Voluntary

Both parties must agree for arbitration to take place. Sometimes, contracts between two businesses or between a company and a customer include an arbitration clause. If a disagreement arises, the parties must go to arbitration instead of taking it to court. But even if there’s no contract, the parties can still agree to settle their dispute through arbitration.

You Get to Choose the Arbitrator

Unlike in a courtroom, where you don’t get to choose your judge, arbitration allows both sides to have a say in who will be the arbitrator. You can even select an arbitrator with specific expertise in your industry, ensuring they understand the details of your case. An arbitration center can assign one if the parties can’t agree on an arbitrator.

It’s Confidential

Businesses often choose arbitration because it keeps the matter confidential. Unlike court cases, which are public records, arbitration happens behind closed doors. It means sensitive business details, financial information, or internal issues remain private.

Final and Binding Decision

In most cases, the arbitrator’s decision is final. There is no lengthy appeals process, and both parties are bound by it. This finality is attractive for businesses because it provides certainty and closure.

How Does Arbitration Work?

The arbitration process is more straightforward and quicker than traditional legal process but still follows a structured path. Here’s how it works:

1. Agreement to Arbitrate

First, both parties must agree to arbitration, either through a clause in a contract or by choosing it after the dispute arises. If arbitration is part of the contract, the terms usually outline how to select an arbitrator, what laws will apply, and the process to follow.

2. Choosing an Arbitrator

Next, the parties either agree on an arbitrator or a panel of arbitrators. If they can’t decide, an arbitration center or service provider can help choose one. Having an arbitrator who understands the specifics of the industry or dispute can make the process smoother.

3. The Arbitration Hearing

The hearing works like a simpler trial. Both sides present their case, share evidence, and have witnesses testify. There are no strict court rules about evidence, so delivering your case is usually easier and faster. After hearing both sides, the arbitrator makes a decision.

4. The Final Decision

Once the arbitrator has made their decision, it’s final in most cases. Both parties must follow the arbitrator’s ruling, and there’s usually no chance for an appeal, making the process shorter than court litigation.

The Pros of Arbitration

Many businesses choose arbitration because of its advantages over going to court. Here are some of the most significant benefits:

• Faster Resolution: Arbitration usually lasts a few months, while court cases can stretch for years. With arbitration, you can resolve the dispute quickly and focus on your business.

• Cost-Effective: Arbitration often costs less than a full trial because the process is faster and more straightforward. There’s no need to go through months of discovery and motions, which can save both time and legal fees.

• Privacy: The confidentiality of arbitration is a huge plus for businesses that don’t want their dirty laundry aired in public. Whether the dispute concerns financial issues or contractual misunderstandings, you can keep the details private.

• Flexibility: Unlike the strict rules of a courtroom, arbitration offers more flexibility in handling the dispute. You can choose the rules, the venue, and even the arbitrator. It makes the process more adaptable to your specific needs.

• Expertise: When choosing an arbitrator, you can select someone with specific expertise in your industry. They gain a better understanding of the dispute, which helps them make a more informed decision.

The Cons of Arbitration

While arbitration has many advantages, it could be better for some situations. Here are a few downsides to consider:

• Limited Appeals: In most cases, the arbitrator’s decision is final. If one party feels the decision is unfair, more room for appeal must be available. This finality can be a downside if you’re unhappy with the result.

• Potential Bias: If one of the parties chooses the arbitrator or the arbitrator has a prior connection to one party, this might raise concerns about whether the arbitrator is fair.

• No Jury: Arbitration doesn’t involve a jury, so if you’re hoping for a group of peers to hear your case, you’re out of luck. The arbitrator makes the final call, acting as both judge and jury.

Arbitration in Business Disputes

Arbitration is particularly popular in business disputes. Many contracts now include arbitration clauses, meaning that if a dispute arises, the parties must resolve it through arbitration rather than litigation. It is common in contracts between businesses and suppliers, employees, or customers. It’s also a great option when both parties want to avoid the time and expense of a public trial.

Types of Arbitration

There are different types of arbitration, each suited to other situations:

Binding vs. Non-Binding Arbitration

The arbitrator’s decision is final in binding arbitration, and both parties must comply. In non-binding arbitration, the decision is more like a recommendation, and the parties can still take the dispute to court if they disagree.

Voluntary vs. Mandatory Arbitration

Some arbitration is voluntary, meaning both parties agree to it after the dispute arises. Other times, it’s mandatory, usually because a contract requires it.

FAQs

Is arbitration cheaper than going to court?

Yes, arbitration usually costs less because the process is faster, and there are fewer legal procedures.

Can I appeal an arbitrator’s decision?

In most cases, no. Arbitration decisions are final, and there’s little room for appeal.

Do I need a lawyer for arbitration?

A lawyer isn’t required, but they can help protect your interests.

How long does arbitration take?

Arbitration can usually be resolved in months, much faster than traditional court cases, which can take years.

Is arbitration always confidential?

Yes, one of the most significant advantages of arbitration is that it keeps your dispute and the details confidential.