Arbitration has been touted as the next generation of business dispute resolution and as a result, many businesses have included arbitration agreements in their contracts. But many businesses have held out. Regardless of which camp your business is in, like all business decisions, it is helpful to periodically reevaluate your dispute resolution strategy.
Whether an arbitration clause is best for your situation is dependent on the specifics of your agreement and the parties involved. It is also important to consider your philosophy of dispute resolution. Do you want to resolve a dispute as inexpensively as possible, even if it takes longer or isn’t “correct”? Do you want experts to resolve the dispute and therefore be more likely to have a “correct” resolution? Do you want to avoid a particular state’s procedures or laws? Depending on your answers to these and similar questions, an arbitration clause may or may not be advantageous. For example, consider the following:
- Public vs. Private Setting - Do you want your proceedings, written filings, and final award to be public or private? If your dispute is likely to include trade secrets or confidential information, arbitration can be agreed to be confidential without a court’s approval.
- Technical Subject Area - Does your dispute involve highly technical facts or law? If so, arbitration may be best as you may agree in advance that any dispute will be resolved by arbitrators with certain qualifications. For example, the parties could agree that arbitrators will be selected from a pre-approved list, or a list from a particular certifying body, or that arbitrators have a certain degree, experience, or qualification. In contrast, most judges in U.S. courts are generalists and you will have no input on which judge is assigned to your case. They may hear your business dispute just after they conduct a criminal sentencing and just before they resolve a family dispute.
- Speed of Proceedings: Is quick resolution most important to you? Arbitration disputes typically have one stage, resolution of the merits without a right to appeal, which means they can often be resolved quickly. In contrast, litigation in U.S. courts goes through multiple stages: e.g., motions to dismiss, motions for summary judgment, pre-trial motions, trial, and potentially an appeal. In litigation, each of these stages could end your dispute, thus making it shorter, but if your dispute goes through every stage, you will likely spend much more time and money to resolve the dispute.
The primary advantages of arbitration are that the parties agree ahead of time on how disputes will be resolved, who will resolve them, and other specifics of the procedure. Because parties can make these decisions while their relationship is positive, or at worst neutral, these decisions can be made more efficiently and with a better eye towards “correct” resolution. Once the parties are embroiled in a dispute, simple procedural or legal questions can become battlegrounds that drain resources and time. As you consider your arbitration clause or adopting a new one, it is important to consider the benefits of arbitration versus leaving your dispute to litigation. Contact us if you want to ensure your agreements match your dispute resolution strategy.