Arbitration Pros and Cons

Learn about the advantages and disadvantages of arbitration.

By , Lawyer and Journalist

In the past few decades, arbitration has become a mainstay in resolving legal disputes. But is arbitration right for you? To find out, learn about the basics of arbitration, including the advantages and disadvantages of this dispute-resolution technique, so you can make an informed decision when choosing arbitration or deciding to sign a contract that contains a mandatory arbitration clause.

Pros of Arbitration

Proponents of arbitration describe it as a way to resolve disputes efficiently and point to a number of advantages it offers over litigation, court hearings, and trials.

Minimizes Hostility

Because the parties in arbitration are usually encouraged to participate fully and sometimes even to help structure the resolution, they are often more likely to work together peaceably rather than escalate their angst and hostility toward one another, as is often the case in litigation.

Usually Cheaper Than Litigation

Arbitration is becoming more costly as more entrenched and more experienced lawyers take up the cause. It is not unusual, for example, for well-known arbitrators to charge $3,000 to $4,000 per day for their services. And most parties in arbitrations will also hire lawyers to help them through the process, adding to their costs. Still, resolving a case through arbitration is usually far less costly than proceeding through litigation because the process is quicker and generally less complicated than a court proceeding.

Faster Than Litigation

According to a study by the Federal Mediation and Conciliation Services, the average time from filing to decision was about 475 days in an arbitrated case, while a similar case took from 18 months to three years to wend its way through the courts.

More Flexible

Unlike trials, which must be worked into overcrowded court calendars, arbitration hearings can usually be scheduled around the needs and availabilities of those involved, including weekends and evenings.

Simplified Rules of Evidence and Procedure

The often complex rules of evidence and procedure do not apply in arbitration proceedings—making them less formal and more easily adapted to the needs of those involved. Importantly, arbitration dispenses with the procedure called discovery that involves taking and answering interrogatories, depositions, and requests to produce documents—often criticized as a delaying and game-playing tactic of litigation. In arbitrations, most matters, such as who will be called as a witness and what documents must be produced, are handled with a simple phone call.

More Privacy

Arbitration proceedings are generally held in private. And parties sometimes agree to keep the proceedings and terms of the final resolution confidential. Both of these safeguards can be a boon if the subject matter of the dispute might cause some embarrassment or reveal private information, such as a company's client list.

Cons of Arbitration

Being aware of the possible drawbacks of arbitration will help you make an informed decision about whether to enter or remain in a consumer transaction that mandates it—or whether to choose it as a resolution technique if a dispute arises.

No Right to Appeal

A final decision is hard to shake. If the arbitrator's award is unfair or illogical, a consumer may well be stuck with it and barred forever from airing the underlying claim in court.

Uneven Playing Field

Some are concerned that the "take-it-or-leave-it" nature of many arbitration clauses works in favor of a large employer or manufacturer when an employee with shallower pockets and less power challenges an employer's arbitration agreement.

Most retailers—car dealers are repeat offenders here—do not mention the arbitration clause before requiring the customer to sign the purchase agreement. Or they will wait until you are ready to drive the car off the lot, then casually mention that they won't sell unless you sign.

Questionable Objectivity

Another concern is that the process of choosing an arbitrator is not an objective one, particularly when the decision-maker is picked by an agency from a pool list, where those who become favorites may get assigned cases more often.

Adding possible complication: Many of the national arbitration groups actively market their services to companies that issue credit cards or sell goods to consumers, casting additional questions on the alleged neutral's objectivity. And an arbitrator chosen by a party within an industry may be less objective, and more likely to be biased in favor of the appointing group.

Lack of Transparency

As mentioned, the fact that arbitration hearings are generally held in private rather than in an open courtroom, and decisions are usually not publicly accessible, is considered a benefit by some people in some situations. Others, however, lament that this lack of transparency makes the process more likely to be tainted or biased, which is especially troublesome because arbitration decisions are so infrequently reviewed by the courts.

Rising Costs

While many still find that arbitration is less costly than litigation, its costs are increasing. Potential arbitration costs include filing fees, hearing fees, administrative fees, hearing room rentals, and arbitrator fees that typically range from $375 to $1,125 an hour.

Smart Steps for Consumers to Take Before Entering Arbitration

Given the possible perils and unevenness for those who unwittingly enter arbitration contracts, the wise consumer can take a number of steps to become better informed and, possibly, ward off a bad experience.

Know the Terms of Your Agreements

Read or reread all agreements you've entered with a retailer, credit card company, or health care provider that may contain arbitration provisions. If the writing obligates you to binding arbitration, and that is not your wish, shop around for another provider.

Pay Attention to All Agreement Changes

If a company switches the terms of its contract to include mandatory arbitration, it must notify you in writing first. Some of these notices may come buried in the envelope itemizing your bill. Resist the temptation to recycle them on sight—and read the fine print.

Speak Your Mind

If you find an arbitration clause objectionable, be sure to make your feelings known to company management. It is sometimes possible to negotiate the provisions away if the company wants your business badly enough.