As one of the most popular methods of alternative dispute resolution (ADR), arbitration represents an alternative to litigating a case in a civil court. Arbitration is designed to offer a streamlined and less costly way for small and medium businesses to handle disputes.
Agreement to Arbitrate
Anyone or any organization can enter into an arbitration agreement. However, the emphasis must be placed on the word “agree.” Arbitration is not a legally permitted ADR method if one or both parties do not sign a formal arbitration agreement. If one of the parties involved in a dispute agrees to arbitration, but the other party never signed an arbitration agreement, then the party that did not sign an arbitration agreement has the right to take the dispute to a civil court for a hearing in front of a judge. Arbitration agreements are standard clauses written into the fine print of most consumer contracts.
Overview of How Arbitration Works
Arbitration is a general term used to describe an ADR method. In virtually every arbitration case, the party filing a complaint sends the other party involved in the dispute a formal notice explaining the intent to arbitrate a dispute. A short period is permitted for a response, which then leads to the selection of an arbitrator, as well as the date and time of the arbitration hearing.
Sometimes, a panel of arbitrators resides over an arbitration hearing. Regardless of whether it is one arbitrator or a panel of arbitrators presiding over a hearing, the form of arbitration is clearly outlined in writing. Both parties typically have a say in how an arbitration hearing will unfold. Rules of an arbitration can also differ depending on the type of contract agreed to by both parties. Both parties should refer to the legal language written into the contract to understand how an arbitration hearing is set up and run. A licensed attorney who specializes in ADR cases can provide insight into how your arbitration case should be handled.
In a majority of arbitration cases, many aspects of the proceeding represent the same aspects that define courtroom trials. Both sides present evidence, make compelling arguments, call witnesses, and ask cross examination questions. However, the legal aspects defining arbitration cases are much more streamlined than the legal aspects of a courtroom trial. After an arbitration hearing, an arbitrator or a panel of arbitrators will render a decision that is legally binding.
Advantages of Arbitration for Small and Medium Businesses
Arbitration offers small and medium businesses several benefits. Many consumer, franchise, employment, and other types of business contracts contain a clause that clearly describes the arbitration process. Some of the contracts make it mandatory for both parties to undergo arbitration.
Let’s review the advantages of arbitration for small and medium businesses:
Fast Method for Settling Disputes
According to a recent study conducted by the Federal Mediation and Conciliation Services, the average time for an arbitration case to reach a decision is around 475 days. Compare that to litigating a dispute, which takes at least two years for a judge to reach a decision. The shorter time it takes to resolve an arbitration dispute is one of the most important reasons small and medium businesses opt for the ADR method.
Speed Equals Money Saved
Litigating a dispute will require the services of a costly attorney, as well as court costs that over the course of two years or more, can run into the tens of thousands of dollars. Although an experienced arbitrator can charge a hefty fee for his or her services, the shorter arbitration process will cost small and medium businesses less money than the money spent of a litigation process.
Control over who is Named Arbitrator
When you walk into a courtroom for a dispute case, you have no idea who will be the presiding judge. Is it someone who makes decisions that are favorable or is it someone who expresses outright hostility towards small and medium businesses? With arbitration, both parties have a say in who is named arbitrator. Because both parties control the selection of an arbitrator, there should be less tension over the decision made by the arbitrator. In addition, the full participation of both parties during an arbitration hearing should also ease any tensions caused by a legal dispute.
If you litigate a dispute with a customer or an employee, you will have to follow a rigid schedule for attending hearings. Overcrowded court dockets makes it nearly impossible for small and medium business owners to find a time that works for their busy schedules. On the other hand, arbitration hearings are often scheduled around the availability of both parties. Flexible arbitration schedules make it the optimal ADR method for small and medium businesses to settle disputes.
Streamlined Rules and Procedures
One of the primary reasons you will need to hire an attorney to litigate a dispute with a customer or an employee involves the complicated rules of evidence and procedures that define court proceedings. Arbitration represents a much more streamlined legal process because there is not a need for answering interrogatories or participating in depositions. In most arbitration cases, both parties call witnesses and submit documents, which is typically handled by making short phone calls.
Courtrooms are open hearings that can create a wide variety of bad emotions for both parties participating in the hearing of the dispute. From ridicule to embarrassment, a court proceeding can damage the reputation of a small or medium business owner. Arbitration hearings take place in a private location, with both parties agreeing to keep the terms of the arbitration agreement as classified information.
Differences between Arbitration and Litigation
It is a good idea to look at the advantages of arbitration by comparing the popular process with litigation. Generally speaking, arbitration is a more efficient way to resolve disputes with customers and employers. The less time you spend resolving a dispute, the more money your business saves. Courtroom proceeding are often bogged down by diversion tactics that leaves you with a costly legal bill.
The difference between an arbitrator and a judge are important to consider as well. Court cases never give either side the opportunity to provide input into the selection of the judge. You get whoever is assigned to the case. However, both parties have the right to offer input on the selection of the arbitrator. You can either select from a large pool of arbitrator candidates or eliminate arbitrator options from a short list of candidates. Moreover, arbitrators are considered experts in their respective field. For example, if you want to resolve a dispute with a customer involving a product defect, the arbitrator chosen for the hearing will have extensive experience with product liability and consumer protection law cases. For court hearings, judges are experts in how the hearings should proceed. They are not experts in a specific type of law.