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April 5, 2022

The Advantages and Disadvantages of Arbitration

By Harsh Arora.

Business contracts often contain a provision requiring the parties to resolve disputes through arbitration rather than traditional litigation. Like mediation, arbitration is a form of alternative dispute resolution. While an arbitrator acts as a neutral party, much like a mediator, after reviewing the evidence and hearing the arguments, the arbitrator has the power to make a binding decision to resolve the case.

There are many appealing benefits of arbitration. For businesses and individuals recovering from the economic effects of the COVID-19 pandemic, arbitration is an effective way to resolve disputes and limit the burden and financial impacts of lawsuits. At the same time, there are certain disadvantages of arbitration that should be considered.

Arbitration is not a “one size fits all” solution for disputes. Whether to include mandatory arbitration in a contract as a mechanism to resolve disputes is a critical decision that all parties should carefully consider. It is in the best interest of the contracting parties to consult with an experienced business lawyer to make an informed decision about their particular situation.

Below are some of the advantages and disadvantages of arbitration to consider.

Advantages of Arbitration

  • Timeliness. Arbitration typically provides a speedier resolution than a formal court proceeding and is much more flexible in terms of scheduling, time, and location.
  • Cost. Generally, both parties split arbitration costs. Arbitration may be cost significantly less than litigation due to the limited discovery and streamlined process.
  • Confidentiality. Unlike a trial that may be open to the public, arbitration is an entirely private process. The privacy and confidentiality of arbitration make it an especially attractive alternative for disputes that involve trade secrets, intellectual property, partnership divorces, employment issues, and other sensitive subject matter.

Disadvantages of Arbitration

  • Finality. If arbitration is binding, the parties have waived their right to have a judge decide the case. There are very limited avenues for an appeal or for other procedural safeguards, even if a decision is erroneous or a mistake was made by an arbitrator.
  • Unpredictability. Arbitrators are not bound by legal precedent and have very few limitations to their discretion, making outcomes and awards far less predictable than those made by a court.
  • No Jury. Unlike a traditional trial, arbitration eliminates the jury. It leaves the decision in the hands of a single arbitrator or a panel of arbitrators.

Takeaway

While the information above may be helpful when deciding whether arbitration is right for a contracting party, it is essential to understand how the advantages and disadvantages apply to contracting parties’ unique circumstances by consulting with an experienced business attorney.

For personalized service and tailored legal advice, contact Kelley Kronenberg’s Business Law attorneys at (800) 393-0179 for an initial consultation.

Kelley Kronenberg has decades of experience providing comprehensive legal services to individuals and businesses of all types and sizes across various industries. Our attorneys are skilled negotiators, problem-solvers, and litigators with both financial and practical business experience. We are committed to providing timely, cost-effective, business-oriented representation focused on personal attention and results.


Harsh Arora, Esq. is Partner and Business Unit Leader at Kelley Kronenberg, where he heads the Business Law Practice. Harsh concentrates in the areas of business litigation, including dispute resolution through arbitrations and mediations, and he continues to assist clients in structuring and restructuring of complex transactional matters.

Contact Harsh Arora at:
Phone: (800) 393-0179
Email: harora@kklaw.com

DISCLAIMER: This article is provided as a courtesy and is intended for the general information of the matters discussed above and should not be relied upon as legal advice. Neither Kelley Kronenberg, nor its individual attorneys or staff, are responsible for errors, omissions and/or typographical errors – always seek competent legal counsel.