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Pros and cons of settling business disputes through arbitration

On behalf of Steven Waldinger

This article looks at why arbitration may or may not be a good way to resolve business disputes.

Unfortunately, dealing with disputes, whether it is with customers, employees, or other businesses, tends to be an inevitable part of running a business, whether for big corporations or small companies. When business disputes end up in the courtroom, they can be time-consuming and costly. However, many businesses seek to resolve commercial disputes in a more efficient manner by having them arbitrated. Indeed, many business contracts include clauses that stipulate that any dispute must go through arbitration. Below is a look at some of the benefits of arbitration, as well as at a few of the drawbacks.

Advantages: Time and money

There are two main reasons businesses tend to opt for arbitration rather than litigation: time and money. In arbitration, the disputants can settle their case outside of the court system, meaning they do not have to worry about long court delays. Furthermore, litigation is notoriously expensive, both because there is a discovery process and delays that can drive up costs. Arbitration tends to cost just a fraction of what taking a case to court would cost.

There are other benefits as well. Privacy, for example, is a big consideration for some businesses. Everything that happens in court is a matter of public record, meaning that business secrets could inadvertently find their way into the eye of one’s competitors. Arbitration, on the other hand, is a private process and what is discussed in arbitration stays secret. Additionally, the disputants have greater control over who the arbitrator will be, whereas in litigation there is almost no control over who the judge handling a particular case will be.

Drawbacks need to be considered

At the same time, arbitration is not a panacea to all business disputes. As the Detroit Free Press points out, unlike in mediation, both parties must ultimately abide by what the arbitrator decides. For parties that lose their case, that can be a big downside. Unless there is evidence of fraud, misconduct, or other inappropriate behavior, the decision of the arbitrator typically cannot be appealed.

While litigation is certainly expensive, the court can be a powerful tool. Unlike a judge, an arbitrator cannot subpoe na witnesses or force one party to hand over documents that may be pertinent to the dispute. Rather, both parties largely rely on each other’s good faith to give the arbitrator all the information he or she needs to come to a decision.

One last consideration: in some cases, mandatory arbitration may not be an option. As the Albany Times-Union reports, New York state lawmakers, for example, are currently working on a bill that would ban clauses that require mandatory arbitration for sexual harassment claims.

Help with business disputes

A dispute can be costly and distracting for businesses. That is why anybody involved in a dispute should contact a qualified business law firm for assistance. An experienced law firm can advise business clients about what their options are and how to best go about resolving disputes in an efficient and effective manner.