Arbitration…What Is It and Are Those Clauses Enforceable?

Arbitration simply means your dispute is submitted and decided by a panel of one or three individuals (the arbitrators) for a final and binding determination (the award).  The panel acts much like a judge in a court of law.  Similarly, the dispute is submitted to the arbitrators much like a trial.  For example, the attorneys present opening and closing arguments, witnesses, experts and other testimony, weigh evidence and other information provided and then render an award enforceable in court.

            The arbitrators are considered a neutral party and provide the parties with a set of rules under which the arbitration will be conducted. 

            Typically, arbitration clauses are included in contracts and the issue is discussed before either party performs.  The arbitration clause negates either party’s ability to file a suit in court regarding the business relationship or contract term.  Once the contract is signed, the arbitration clause is enforceable.

            An arbitration clause should tell you the rules which you must arbitrate under as well as where the arbitration will take place and the service provider (AAA—American Arbitration Association, BBB—Better Business Bureau, JAMS—Judicial Arbitration and Mediation Services, Inc.).  The service provider will set the fees.

            As compared to a trial court, the rules of evidence do not typically apply in an arbitration thereby making the process less formal and stressful.  The arbitrator is able to weigh the evidence presented and determine if any information is repetitious or irrelevant.  Moreover, most arbitrations do not require the use of an attorney thereby allowing parties to represent themselves.  Be advised, however, that the arbitration rules should be reviewed to ensure that attorney representation is not necessary.

            Besides the benefits of an informal proceeding, arbitrations are typically much cheaper than trials.  They do not last as long and the parties do not have as much preparation and discovery beforehand.  The arbitrator may grant any award which is enforceable in a court of law.

            Finally, arbitration should not be seen as an unwanted beast but rather an opportunity for a business to get a fast cost effective remedy to a problem.