Arbitration is a widely used alternative dispute resolution method that offers both advantages and disadvantages compared to traditional litigation. It provides parties with a quicker, cost-effective, and more private way to resolve disputes, but it also has some drawbacks.
Pros of Arbitration
Speed and Efficiency:
Arbitration is known for its expeditious resolution of disputes. Cases typically move faster than traditional court litigation, as the parties can schedule hearings and proceedings at their convenience, reducing delays in crowded court dockets.
Cost-Effective:
Arbitration can be more cost-effective than litigation, particularly in complex cases. It reduces expenses related to court fees, legal representation, and formal court processes. Parties can choose from a wide range of arbitral forums, allowing them to select a cost-effective solution that suits their budget.
Expertise and Neutrality:
Arbitrators are often chosen for their expertise in specific areas of law or industries. This ensures that disputes are resolved by individuals with a deep understanding of the subject matter, contributing to fair and knowledgeable decisions.
Privacy and Confidentiality:
Arbitration proceedings are generally confidential, shielding sensitive business information and personal details from public scrutiny. This can be particularly advantageous in cases involving proprietary technology, trade secrets, or sensitive personal matters.
Finality of Awards:
Arbitration awards are often final and binding, with limited grounds for appeal. This provides closure for the parties and reduces the likelihood of lengthy appeals, offering a quicker path to resolution.
Cons of Arbitration
Limited Rights to Appeal:
While finality can be an advantage, it can also be a disadvantage. Parties may have limited rights to appeal an arbitration award, even in cases of manifest error or legal misconduct by the arbitrator. Arbitration is definitely faster and cheaper than litigation, but because arbitrators have the reputation for impartiality, arbitration does not always guarantee that the employer will receive the result it wants. If the employer does not like the outcome, they might have to eat it anyway.
Lack of Precedent:
Unlike court litigation, arbitration decisions do not create legal precedent. This means that similar disputes may be decided differently in separate arbitration cases, leading to inconsistency in the interpretation of the law. Nor are arbitrators bound to abide by precedent in their jurisdiction. This may lead to outcomes that are difficult for the employer’s attorney to forcaste.
Limited Discovery and Transparency:
Arbitration often involves limited discovery procedures, which can make it challenging for parties to gather evidence or ascertain the full scope of the dispute. This lack of transparency can be frustrating in complex cases.
Limited Applicability of Arbitration.
“Binding Arbitration” is not necessarily always “binding”. After the conclusion of an arbitration proceeding, for example, a former employee may still be able to bring the same grievance before other tribunals like the Equal Employment Opportunity Commission. Laws are beginning to invalidate arbitration clauses in employment agreements that deal with certain subject matter like sexual harassment.
Conclusion
Using an arbitration clause in an employment agreement is a tactical decision that is best made with the integrated guidance of company officers, human resources professionals, and a dedicated general counsel that can understand your “big picture” risk profile.
If you have any other questions about employee agreements, set up a consultation.
