What are the benefits and drawbacks of arbitration? | Steinberg Law Firm

What are the benefits and drawbacks of arbitration?

The potential benefits and drawbacks of arbitration vary from case to case, but generally the two claimed advantages of arbitration are:

1) Speed: Arbitration is claimed to be a faster way of resolving disputes than having them heard in court. However, in our experience and many others agree, arbitration of larger or more complex claims, like construction claims, often are not resolved any faster in arbitration than they would be in court. Defendants often like to claim that arbitration will be a faster way to resolve a claim, but once in arbitration, those same defendants do everything they can to delay the claim.

2) Cost: Arbitration is claimed to be a cheaper way to resolve a claim than having it decided in a court. Arbitration supposedly is cheaper because it is faster and because the parties’ ability to engage in discovery (the process of the parties obtaining information, documents, and testimony from one another and others prior to a trial or hearing) and the parties’ ability to appeal are limited. Again however, in our experience and many others agree, arbitration of larger or more complex claims, like construction claims, often are resolved for roughly the same costs in court as in arbitration. In arbitration, the arbitrator and the organization administering the arbitration both charge significant fees for their services, whereas in court, the judge who conducts the case, the jury who decides it, and the clerk of court who handles filing and scheduling are all part of our judicial system and are provided free of charge to the parties.

There are a number of serious drawbacks to having a claim decided through arbitration:

1) Fairness: In court, a plaintiff gets to have his or her claim heard by an impartial judge who works for the citizens and a jury of impartial everyday citizens. In arbitration, the arbitrator is usually a lawyer who in addition to serving as an arbitrator also represents clients in other cases. The lawyer may favor defendants or may be biased or partial in some other way. The arbitrator or arbitration organization also may rely on the defendant for business because the defendant gets sued regularly and as a result may, intentionally or unintentionally, show favoritism to the defendant. Whereas the plaintiff may never file another lawsuit for the rest of his or her life and does not present the same business opportunity to the arbitrator and arbitration organization. In court there are fewer concerns about a judge not being impartial than for a private arbitrator.

2) Appeal: Parties have very limited abilities to appeal an arbitrator’s decision. The availability of having a decision corrected on appeal is so limited that arbitrators often can make blatantly incorrect decisions and a court will not do anything to correct the decision.

3) Discovery: In arbitration the parties’ ability to engage in discovery, i.e., to obtain information, documents, and testimony from the other side or witnesses prior to the hearing, is limited. This is in contrast to court where parties have much broader ability to engage in discovery to obtain the evidence they need. In construction cases this is particularly significant because the defendants (the contractors who built a house or condo) have all of the information and documents about how the home or condo was constructed and the plaintiff needs discovery to obtain that information and those documents.

4) Cost: Arbitrators and arbitration organizations charge significant fees for their services.

5) Unfair Terms: In contracts, defendants often combine language providing for arbitration of claims with other unfair language limiting how a plaintiff can bring a claim against a defendant. For example, defendants like to add in language providing that a plaintiff cannot bring claims through a class action or cannot combine together with neighbors to all bring their claims in one lawsuit. Other examples are that defendants like to insert language providing for three arbitrators to hear a dispute which is three times as expensive for plaintiffs, language limiting the types of claims a plaintiff can bring, and language limiting the damages, i.e., money, a plaintiff can receive in compensation for claims.

6) Location: The language in a contract providing for arbitration may also specify where the arbitration hearing must take place and often specifies that it must take place where the defendant corporation’s headquarters are located. The result may be that the plaintiff has to spend significant amounts of money to travel across the country to a hearing in a location far away from the location of the plaintiff’s claim.

7) Confidential: Arbitration is confidential. The evidence presented in an arbitration and the arbitrator’s decision are not available to the public. Defendants love this because it keeps their failures from becoming known to the public, avoids media attention, and keeps others from knowing they may have a potential claim. In other words, it allows defendants to keep engaging in the same wrongful conduct without anyone knowing about it.

8) Lack of Agreement: The language in a contract providing for arbitration is usually hidden away in the document and written in language the average person cannot understand. The average person has no idea that a contract gives up the right to have claims tried in court before a jury until arbitration is unfairly forced on them by a defendant years later. In other words, a defendant may force a plaintiff to arbitrate on the basis that the plaintiff agreed to arbitration when in reality the plaintiff agreed to no such thing.

For more on arbitration:

  • The New York Times, Arbitration Everywhere, Stacking the Deck of Justice,
    https://www.nytimes.com/2015/11/01/business/dealbook/arbitration-everywhere-stacking-the-deck-of-justice.html
  • Public Citizen, How Credit Card Companies Ensnare Consumers,
    https://www.citizen.org/sites/default/files/arbitrationtrap.pdf
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