What is arbitration?

Alternative Dispute Resolution ("ADR") is a mechanism by which civil disputes are resolved as an alter­native to civil litigation. Alternative Dispute Resolution, in some instances, may be mandatory and in other instances it is voluntary.

Mandatory Alternative Dispute Resolution is found in many forms of contracts such as brokerage contracts, employment con­tracts, and construction contracts. For instance, if you enter into a brokerage contract with a stock broker the contract is probably going to contain a mandatory arbitration clause that requires you to arbitrate any dispute that you may have with the broker as an alternative to filing suit against the broker.

In employment contracts, it is quite common for an employer to insert mandatory Alternative Dispute Resolutions such as arbi­tration or mediation as an alternative to filing suit.

The three different forms of Alternative Dispute Resolution are:

  • arbitration,
  • neutral case evaluation, and
  • mediation.

Arbitration is an alternative to a trial before a judge and/or jury. In most arbitrations there is one arbitrator who acts as the judge, although in some instances there may be more than one arbitrator who collectively act as the judge or judges to decide the case. Arbitrators act in all instances without a jury. The arbitrator is normally picked by the parties. If the parties are not able to agree on who the arbitrator should then in most arbitration agreements there is a mechanism as to how the arbitrator will be chosen. Arbitration as a means of Alternative Dispute Resolution may be preferred by some parties over a court trial because it is speedier and, in some cases, may be less expensive.

Most contracts with general contractors and architects have arbitration clauses in them. The individual consumer should be wary of mandatory arbitration provisions because it constitutes a waiver of the right to a jury trial. The
consumer's right to a jury trial is a potent weapon to have in the event of a dispute arising with a contractor, architect, or other party to a contract.

The selling point that arbitration is less expensive than a court trial is not always the case. Most arbitrators are profes­sionals who expect to be paid for their time. If you are involved in a multi-day arbitration hearing then you may be looking at paying thousands of dollars in the form of arbitration fees in addition to paying your own attorney's fees. A trial in front of a judge generally only carries with it the expense of filing suit at the courthouse, which in most jurisdictions is only a couple hundred dollars. One cost saving feature of arbitration is that there is little or no discovery such as you see in civil litigation. Depending on the fact of your case, the lack of a discovery process may be an advantage to the consumer.

A disadvantage to arbitration is that most arbitrators are professionals in that particular field, i.e. architects, engineers, brokers. Most of them are not trained in the law or in contract interpretation. Lawyers and judges are trained in contract interpretation. In that sense it may be more prudent to have a judge deciding your case as opposed to an arbitrator.

In addition, a judge is more likely than an arbitrator to be truly neutral in any dispute resolution process. Judges are required by law and professional ethics to be neutral.

In general, mandatory arbitration clauses in contracts are not to the advantage of the consumer. If that is an issue in a contract you are negotiating, then you should consider whether the arbi­tration clause can be made voluntary as opposed to mandatory.

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