A significant development in the past decade has been the growing acceptance of binding arbitration, especially with the recent Supreme Court Decision Epic Systems Corp. v. Lewis, 137 S. Ct. 809 (2017). The judicial facilitation of private dispute resolution through arbitration has been legal in both state and federal courts since the Federal Arbitration Act was passed in 1926. The recent growth in popularity of arbitration has led to pre-dispute inclusion of arbitration provisions in contracts, as well as the voluntary post-incident submission of disputes to the arbitration process. Although historically rooted in the labor relations field, the use arbitration has expanded rapidly, to the point that arbitration is always at least a consideration for contracting parties and/or litigation adversaries to consider. The American Arbitration Association (AAA) reported that total arbitration case filings rose by 26% from 2014 to 2015. The trend of yearly increases in cases filings has repeated itself since the 1980s. The rise in arbitration filings shows that parties and their counsel are finding that arbitration is a viable alternative, and often preferential, to civil litigation.
Benefits of Arbitration
Arbitration is similar to litigation in that it involves an adjudicative process. Disputants prepare and put on their case by presenting evidence and argument to a neutral third-party. This neutral third-party has the ultimate decision-making authority in the matter. Unlike litigation, the parties have more control over almost all aspects of the process. Most significantly, arbitration allows the disputing parties to select their arbitrator. Arbitrators are highly trained individuals with expertise in a variety of areas. Commercial arbitrators may include business executives, lawyers, and other professionals. The parties can choose an arbitrator knowledgeable and experienced in the particular industry or the field of law at issue. This ensures that the arbitrator understands the issues and is competent in informed decision making. Using a subject area specialist as an arbitrator also eliminates the need to “educate” the trier of fact on the contextual setting of the dispute.
Arbitration provides other benefits as well. It provides a private forum instead of a public courtroom. Depending on the nature of the dispute, this may be an important factor weighing in favor of arbitration. Highly sensitive, personal or contentious topics can be discussed without unwanted attention. This private process encourages parties to air their grievances honestly and openly without fear of exposing themselves to public scrutiny. In most arbitrations, there is no testimony transcript, so there is no concern of a permanent record of damaging or embarrassing testimony.
The arbitration process is generally cheaper as well. Pre-trial procedures are streamlined so that disputants are able to save time and money. For example, arbitration parties can agree on the scope and duration of discovery, or they can defer to the arbitrator to set reasonable limits on discovery—limits presumably far short of routine civil trial discovery. Thus, the disputants are able to shape the arbitration process and avoid unnecessary expenses when possible.
Arbitration is intended to provide a quicker and simpler alternative to a full-blown trial. The process is informal. Permitting the parties to bypass procedural formalities saves time. For example, traditional rules of evidence do not apply. As a result, parties to an arbitration do not encounter many of the lengthy delays associated with civil litigation. Use of videotaped deposition testimony and live testimony by conference call are common in arbitration, again saving time and money without sacrificing integrity.
While arbitration is intended to free the parties to deal quickly and cheaply with legal disputes, the process has its own limitations. Parties can still encounter delays. For example, selecting an arbitrator or deciding what rules will apply during the arbitration can be time-consuming. It is also important to keep in mind that a party to arbitration foregoes the right to a jury. Like a bench trial in civil litigation, a single person makes the decisions; and, the litigants (especially individual clients) may not be totally satisfied by their day in court. And, unlike civil litigation, the parties to an arbitration must pay the arbitrator, typically at a hefty hourly or daily rate.
Arbitration, while less confrontational than litigation, is still adversarial. If both sides are agreeable and believe they can reach an agreement amicably, it may be best to consider mediation, another form of dispute resolution. Mediation is a negotiation. Like arbitration, a neutral third-party is chosen to facilitate the process. The mediator, though, does not make a final decision and there is no presentation of evidence. The mediator normally only knows enough about the dispute to challenge the respective parties on their settlement position, hopefully persuading them to compromise further and settle the case. If mediation fails to produce a settlement, the parties just continue in litigation. (There is, of course, nothing to keep parties in arbitration from submitting to mediation first.)
In the litigation arena, we encourage clients to incorporate arbitration agreements into their contracts from the outset. To ensure that arbitration clauses are enforced, it is best to fully inform employees about arbitration and the consequences of signing an arbitration agreement. The arbitration clause should apply broadly to all possible claims. The language should be clear and easily understandable. Complicated arbitration clauses are easily avoided. A court will enforce an arbitration clause in a contract only if the enforcing party can demonstrate that the other party was fully informed and voluntarily agreed to the provisions.