A Beginner’s Guide to the Arbitration Process

Arbitration is often referred to as a ”businessman’s” form of dispute resolution. While this is a common assumption, the process of arbitration is actually governed by federal and state law. 

Throughout each state in the U.S., there are certain provisions that govern civil practice rules and arbitration cases. Most states tend to stick to the Uniform Arbitration Act. However, some states also choose to enforce specific rules of arbitration depending on the case. 

If you’re facing the reality of an arbitration procedure, this blog outlines all the basics you need to know. 

Understanding Arbitration and How it Works

In a nutshell, arbitration is a method of resolution. It’s also a private process that is overseen by an independent third party. Arbitration covers a plethora of disputes. Whether it’s a personal injury claim, a legal dispute between two companies, or a consumer and a supplier, divorce proceedings, and more.

So, how does it work? 

An arbitration hearing is held where an individual arbitrator (the independent third party) or a tribunal is appointed. A tribunal usually consists of more than one arbitrator, such as three different parties to assist with resolution.

Each party in the dispute relinquishes power to the arbitrator(s) so that they can come to a decision about the dispute. But what is the point of arbitration? In short, it’s an alternative to spending time in court. However, the outcome of an arbitration hearing is just as legally binding.

The goals of an arbitration hearing include: 

  • To come to a fair dispute resolution for all parties involved
  • To come to this resolution without additional expense or time delay 
  • Both parties should agree on the outcome of the dispute resolution 
  • There is no interference of the court system 

So who decides on the appointment of arbitrators? There are a few different options. One of the most popular is a direct appointment by the disputing parties, based on mutual agreement. Another option is an appointment by an external party, such as the court or an institution suggested by disputing parties.

What Are the Common Types of Arbitration?

There are numerous forms of arbitration today with the purpose of solving the legal issues of disputing parties. Some of the most common include:

  • Commercial arbitration between two enterprises, i.e. businesses
  • Consumer arbitration between a disgruntled consumer and supplier of services or goods
  • Labor arbitration which focuses on employment issues 
  • Rights arbitration, also known as grievance arbitration — this is usually focused on the violation of a collective agreement
  • Interest arbitration, or contract arbitration 

Of course, there are other forms of arbitration that relate to a plethora of legal issues. Some of these include divorce arbitration, securities arbitration, judicial, and more. 

Why Choose Arbitration For Dispute Resolution?

The process of arbitration is beneficial for a number of reasons. But the most obvious is that you can avoid the lengthy, costly, and emotionally draining process of going to court. Here are a few other benefits of choosing this form of dispute resolution:

1. Freedom of Choice 

Another one of the standout benefits of this legal process is that you get to choose your final decision-maker. This means that you can choose the best arbitrator based on your personal case. Choosing a specific arbitrator for your case also means that evidence is better understood, which makes for an ideal outcome for both parties.

2. Faster and More Efficient Resolution

Arbitration cases are heard sooner and resolved in a far quicker manner than going through the complicated court system. Generally, these hearings are shorter because the preparation for it is less time-consuming and demanding.

3. Guaranteed Privacy 

It’s no secret that when you go through the court system, all the details of your case become public record. Arbitration is a private process that keeps this information between the disputing parties, the arbitrator(s), and witnesses. 

Final outcomes of the process will not be published and are not directly accessible, either. This can go a long way in protecting your reputation, which is especially important for businesses.

4. Convenience and Flexibility 

The arrangement of arbitration hearings is based on both party’s schedules. You can choose the meeting place, time, and date as long as disputing parties, arbitrator(s), and witnesses can all attend. 

Another benefit is that the hearing is divided up or segmented as needed. This helps to simplify and streamline the process. 

5. No Room For Appeal

Generally, the process of arbitration is backed by a no-right of appeal. However, this is dependent on a few factors such as evidence of obvious fraud, corruption, or other illegal activity.

The award or final decision of the arbitrator is binding and cannot be appealed, either. But bear in mind this can also be a disadvantage. If the arbitrator makes a mistake or unjust decision, the losing party cannot appeal or seek justice for this. 

What Does Arbitration Cost? 

Finally, it’s important to consider the cost of an arbitration process. It’s not always affordable for both parties, but a bonus is that the cost can be divided in order to make it more affordable. The court also appoints an adjudicator to most arbitration hearings, but this does not include a fee. 

Depending on the case and claim amount, arbitration can be costly. The minimum fee for a case claim of $100,000 is an average of $2,000. However, this fee can climb much higher as the claim amount increases. Sometimes, a maximum fee of 10% of the claim amount is charged. There are also additional costs to consider, such as administration fees. 

But it’s important to remember how much money you are saving on avoiding time in court and expensive litigation fees that span over several months. This is why arbitration is the better choice. 

Safeguard Your Business With Knowledge 

No business wants to face the reality of arbitration. But in the big scheme of things and based on the above facts, it seems like an intelligent choice when you’re in a legal bind. 

If you’re a business owner and want to keep abreast of business news, industry updates, and business ownership, don’t miss out on the rest of this site for more! 

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