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What Businesses Need to Know About Arbitration

What Businesses Need to Know About Arbitration

The word arbitration is being heard more and more in the business world. The term is commonly used concerning issues like retail contracts, credit card agreements, and employee contracts. Arbitration is also becoming a go-to method for solving business disputes. If you ever become involved in an arbitration hearing, it is important to understand what this means for you and your business.

Arbitration Agreements

Arbitration is a dispute resolution method that does not require a lawsuit or legal proceedings of any kind. In order for a business dispute to be settled by arbitration, both parties must be part of an arbitration agreement. These agreements are usually a few sentences long and written into a business contract before a dispute of any kind takes place. An arbitration clause will oftentimes stipulate any future disputes that will be decided by a third-party arbitrator. Other times, an arbitration clause will contain language identifying specific disputes that will come under the jurisdiction of an arbitrator.

Time Commitment

Arbitration is generally less time-consuming than the litigation process. The process of arbitration also costs less, is less public, and is not as adversarial as dealing with the court system. The focus of arbitration is oral hearings and both sides of a dispute will have a chance to voice their concerns. Part of the premise of arbitration is that arbitration should take less time than litigation. The process is less formal than a court and arbitration proceedings can begin in as little as a few days after contacting an arbitrator. Witnesses for both parties will be called, and these disputes are often settled in under a week.

Parties to Dispute Enjoy More Control

The parties to an arbitration proceeding can make decisions regarding their dispute even before the process begins. This differs from a court proceeding where everything will be governed by laws and statutes. Agreements can include who will arbitrate the matter, how many arbitrators will become part of the process, and what language can be used at an arbitration hearing. The parties to a dispute can also determine what set of arbitral rules will govern their arbitration proceedings.

Expertise of Arbitrators

Arbitrators are often lawyers who possess a measurable degree of expertise in the business sector the disputing parties are involved with. This knowledge of the industry makes it simpler for the parties to an arbitration dispute to explain the nature of their dispute to an arbitrator. Many times, in a court proceeding, a judge will have to consult with a specialist to gain an understanding of important aspects of the case. This will add a significant cost to the proceedings.


When two parties agree to settle a matter by arbitration, they can expect a much higher level of confidentiality than can ever be expected with traditional court proceedings. Court proceedings are public matters that anyone can view or research while arbitration hearings can be handled as privately as desired by the two parties involved. An arbitrator will take no position as to how confidential the details of an arbitration hearing is handled. However, he or she will honor the wishes communicated by the parties to the dispute. This means the parties are also allowed to make public any information that results from arbitration on which they agree.

More Comfortable

Legal proceedings take place in a courtroom. These environments can be intimidating for some people. On the other hand, the arbitration process can be conducted in informal settings. Information gathering conversations between party representatives and the arbitrator can take place over the telephone. And the arbitration hearing can take place in a conference room. The parties, their representatives, and any witnesses can sit together at a table. There is no need for a judge to wear a black robe. There is no jury and the level of tension will be much less than what is common in a courtroom.

Streamlined Discovery Process

During the discovery process, both parties to a dispute must provide information that is pertinent to the dispute. There are a number of ways a party can obtain the information it desires including document requests, interrogatories, property inspections, subpoenas of third parties, and depositions. The discovery process is the most expensive part of traditional court proceedings and often causes a business to disclose information that is detrimental to its operations. Arbitration agreements allow businesses to limit discovery efforts. For example, it can be written into the arbitration agreement that only a predetermined number of interrogatories, requests for documents, and deposition hours are permissible. In some cases, arbitration agreements disallow discovery altogether.

Recover Attorney Fees

Arbitration agreements can include a condition that the party which prevails in the settlement of an arbitration dispute will receive compensation for the monies spent on attorneys and other costs to settle the dispute. This provision is especially important for a business considering the possibility of filing a lawsuit against another business entity. Laws differ slightly from state to state regarding these provisions and it is probably best to consult with an experienced attorney before adding this to your arbitration agreement.

The Weight of an Arbitrator’s Decision

Arbitration decisions can either be binding or non-binding. This is usually decided by the language used in the initial arbitration agreement. Binding agreements are final and enforceable by law. They can only be overturned in rare circumstances where the misuse of power or fraud has taken place. Non-binding arbitration means the decision of the arbitrator is not enforceable and is given as a guide to the parties involved with the dispute. Parties often treat these types of arbitration decisions as an assessment of their position if a lawsuit was filed and can choose to litigate the matter even after the arbitrator’s decision.
The popularity of arbitration in lieu of litigation is a trend that is only expected to increase. Yet, many business owners are still unsure of how this process works. The savvy business owner would do well to gain a working understanding of the arbitration process and how it can be used to protect the interests of their business.
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