The advantages and disadvantages of arbitration often depend on the purpose for which the parties have proposed the agreement, their goals for dispute resolution, and their relative sophistication when it comes to knowing their rights in a particular situation. For example, arbitration agreement pros and cons for an employer/employee agreement may be very different from the pros and cons for two businesses sharing confidential information with each other.
This overview will help you understand why some parties may prefer arbitration, while others may be better protected by retaining their right to bring a lawsuit.
What is an arbitration agreement?
Arbitration is an alternative form of dispute resolution. Unlike litigation, where a case is heard in front of a judge (and, potentially, a jury), arbitration is a private, less formal procedure. The results are still legally binding, but they cannot be appealed and are not a matter of public record.
Instead of a judge, an arbitrator or a group of arbitrators will oversee the hearing. Arbitrators are often retired judges, lawyers, or people with special expertise who have undergone arbitration training. The rules of disclosure and evidence are far less stringent than litigation. It can also be a much quicker dispute resolution method—unlike litigation, which can drag out for months or years. This can reduce the cost involved.
Although there are plenty of arbitration agreement pros and cons, arbitration can sometimes be more advantageous for one party. If you’re considering arbitration, it’s important to understand how an arbitration agreement can affect your rights.
Pros of using an arbitration agreement
There are plenty of upsides to arbitration, which is why it has become so popular in certain types of disputes. Advantages of arbitration include:
- Cost-effective: Arbitration costs can vary, especially if either or both parties hire lawyers to help them navigate the process. However, because arbitration tends to be a quicker process, it’s typically cheaper than litigation, which can be prohibitively expensive for many people. Depending on the type of dispute you’re resolving, and who you choose as an arbitrator, arbitration offers significant savings in most cases.
- Fast: The average court case takes months, if not several years to resolve. This is due to packed court calendars, a stricter discovery process, motions, hearings, and eventually trial, unless it settles out of court. Arbitrated cases tend to go much quicker.
- Better scheduling opportunities: Arbitration hearings don’t depend on court schedules, making it much easier to schedule them around the parties’ commitments. Evenings and weekends can be utilized to reach a faster resolution.
- Simplified rules: Litigation requires strict adherence to rules of evidence and civil procedure. In arbitration, these rules are streamlined. Discovery processes—which can be an endless back-and-forth—are instead handled in more informal ways.
- Privacy: Court cases are a matter of public record. In contrast, arbitration proceedings are not public. Parties can agree to keep the proceedings and resolution private with a confidentiality agreement where permissible.
Cons of using an arbitration agreement
Despite the many positives of arbitration, there are also some drawbacks:
- Final decision: Unlike court cases, which can be appealed, arbitration decisions are typically final. There is no option to appeal, except in very limited circumstances.
- Power imbalance: In many circumstances, one party may have more power over the other. For example, a minimum wage employee may be required to sign an arbitration agreement as a condition of employment. The parts of arbitration which benefit the employer, such as privacy, streamlined rules, and a less adversarial process do not necessarily benefit someone who doesn’t have the same access to legal representation or evidence.
- Choice of arbitrator: Because parties have input into who is chosen as the arbitrator, there’s always a chance that they won’t be a completely neutral third party.
- Rising costs: Arbitration can be cheaper than litigation, but costs are actually rising. More legal professionals and industry specialists are training to be arbitrators. As a result, arbitrators are commanding higher fees than ever before.
- It’s complicated: Your arbitration agreement needs to comply with federal and state laws that limit employers’ use of arbitration agreements. Sometimes federal and state law conflict, and it can be difficult to figure out how to draft a legally compliant arbitration agreement with an employee.
How to create an arbitration agreement with SixFifty
If you choose to use an arbitration agreement, it needs to comply with federal and state laws. While you can hire an attorney to draft an arbitration agreement from scratch, SixFifty has a better solution.
Our Employment Agreements combine real legal expertise with proprietary technology, so you can generate enforceable agreements no matter where your employees live and work. Simply answer a few questions about your company and download the generated document. When it comes to arbitration pros and cons, easy and cost-effective agreements are definitely a mark in the “pro” column.
Ready to find out more? Schedule a free product demo today!