What is Arbitration and How Does It Work?

Arbitration is a common form of alternative dispute resolution (ADR). It is essentially a smaller version of a trial, but conducted by an arbitrator or panel of arbitrators that the parties select. You generally cannot be required to submit to arbitration proceedings unless you have agreed to them. There are some disputes that by law or collective bargaining agreement must be submitted to arbitration.

What is the Difference Between Mediation and Arbitration?

Arbitration is not mediation. Understand that if you agree to submit your dispute to arbitration, you are giving someone permission to decide the merits just as if you were in court. The decision will be binding just as a court decision.

In mediation, a third party neutral will try to help the parties reach a voluntary settlement. If the parties do not agree, the mediation is over and they go back to litigation.

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Basic Rules of Mediation

The arbitration process is generally governed by either the standard rules of the American Arbitration Association ("AAA") or the rules of the dispute resolution provider the parties choose. If you have a contract where you agree in advance to arbitrate, it will usually specify either the applicable rules or the provider.

These rules will govern whether discovery is available to the parties, and to what extent. They will set forth the procedures for the arbitration hearing, including what rules of evidence apply. Discovery is usually more limited in these proceedings than in a regular civil lawsuit.

At the hearing, the rules of evidence are usually more relaxed than in court. You can expect that you will be able to present witnesses, submit documentary evidence, and cross-examine the other side's witnesses.

After the hearing, the decision on the arbitration is binding. The arbitrator award can be then entered in court and enforced just like an other legally binding judgment.

Discovery in Arbitration

In a civil lawsuit, the process of discovery allows both parties to request documents and information from each other and to take pretrial testimony in the form of depositions. This can be extremely important in cases where you need information only the other side has to prove or defend your case. For example, in an employment case the plaintiff-employee may need substantial information about what was happening behind the scenes to prove their claims.

Discovery in arbitration varies by the rules of the provider you are using, but is almost always more limited and streamlined than in court. There is usually the opportunity to ask for documents and submit written questions, but the scope is likely to be limited. It is also common for depositions to be either extremely limited or not available at all.

The Role of the Arbitrator

You should think of the arbitrator the same way you would think of a judge in court. he or she will set the ground rules for the process and resolve prehearing disputes between the parties. He or she will preside over the arbitration hearing the same way a judge would preside over a trial.

The arbitrator also serves the role of the jury. He or she will be the one who decides which side of the story is credible and what damages if any should be awarded.

Unlike a judge, there are very limited rights of appeal if you think he or she got it wrong.

What Happens Once an Arbitration Award Issues?

The decision is called an award, and is final and binding on the parties. Either party can enter the award in court. At that point it can be enforced the same way a civil judgment can be enforced. This could include liens and other collection proceedings against the party found to owe money.

If you are unhappy with the decision, you have very limited rights of appeal. Under the federal Arbitration Act, courts may only modify or vacate an award under narrow circumstances. For example, if there is evidence that the arbitrator was biased, or exceeded his or her legal authority. Some alternative dispute providers offer an internal appeal procedure, but in general you should know that the the ability to get a second opinion on the dispute is limited.

This limited right to appeal is one of the reasons some people prefer this form of dispute resolution. But the finality of the decision can be one of the disadvantages if you are on the losing end of an award.

What Does Arbitration Cost?

The out of pocket costs of arbitration can be substantial. The arbitrator is paid by the hour for all the time he or she spends on your case. The hourly rates depend on the individual, but can range from $300 to $800 an hour. This includes initial review of the case materials, meeting with the attorneys to set schedules, and the hearing itself.

If you are paying your lawyer by the hour, this is usually still a less expensive option because overall it takes less time. If you are on a contingent fee arrangement as a plaintiff, this will make pursuing your claim more expensive.

Should You Agree to Arbitrate Your DIspute?

If you have already agreed to this in a preexisting contract, you may have no choice. But you may find yourself in a legal dispute and asked to consider voluntarily agreeing to submit to alternative dispute resolution. In that case, here are some things you should consider:

  • If the case is complex and will need substantial discovery, you may be better off in court. On the other hand, if the facts are either uncomplicated or largely agreed, this may be a cost-effective way to get to resolution.
  • If you are paying your lawyer by the hour, it may save you money. If you are a plaintiff on a contingent fee agreement, this process will make the litigation more costly for you in the short term.
  • If you think the case is likely to settle "on the eve of trial," arbitration will most times bring the "eve of trial" sooner.
  • If your case involves complex or novel legal issues, you may prefer to be in court where all of the normal appellate rights apply.

How We Can Help

We have worked with all sorts of these provisions, from reviewing and assessing a dispute resolution procedure in contracts to representing individuals and businesses in mediation and arbitration proceedings.  We can help you understand what you are agreeing to and how to make the most of the arbitration rules or mediation procedures.  Give us a call at (781) 784-2322 or use the button below to schedule a free consultation.  We look forward to hearing from you!