Understanding Arbitration: The Process and Advantages


Legal conflict resolution services such as mediation and arbitration are useful tools in personal, business, and contractual disputes. People often prefer settlements out of court because of the expense and duration of a trial. Having an arbitrator, however, is often better than dealing with mediation when binding decisions are necessary.

What Is Arbitration?

On the surface, arbitration seems similar to mediation: It is a private process for disputing parties to settle their differences outside of court. However, unlike mediation, the arbitrator(s) can make a final and legally binding decision, making the process more like a trial. Each disputing party can make an opening statement and present witnesses or arguments.

The benefit of arbitration over a formal trial is the timeline. Trials typically last longer, requiring more expense, and there is less flexibility in the process. While often binding, an arbitrator’s decision can also be nonbinding, requiring acceptance from both parties for validation.

While there is some wiggle room in the agreement’s concreteness, an arbitrator’s decision is enforceable and not easily appealed once accepted. The process’s finality makes the endeavor perfect for business and contractual disputes, limiting delays in services and projects.

What Types of Arbitration Are There?

Arbitration can take on many forms, from voluntary to mandatory, contract to labor, securities to judicial. The critical component of each type is a dispute between two parties or organizations.

Contractual Arbitration

When two parties or enterprises enter into an agreement, the contract often includes a clause about settling disputes through arbitration. If one party feels the other is not adhering to the agreement during the course of fulfilling their contractual duties, they can ask for arbitration. This agreement or contract is often considered voluntary arbitration because both parties sign the contract freely.

Labor Arbitration

It is often more effective for employers and employees to take disputes to an arbitrator rather than the picket line. Interest arbitration is a useful tool for resolving the terms of a new contract. Grievance arbitration focuses on conflicts over current collective bargaining agreements, specifically applying and interpreting particular clauses.

Securities Arbitration

The securities industry uses arbitration to resolve conflicts between brokerage firms. While not often used for civilian discrepancies, this form of conflict resolution is commonly written into financial agreements among institutions.

Judicial Arbitration

Sometimes a judge will sentence parties to mandatory arbitration. While not a frequent occurrence for businesses, judges often use the tactic in family court to resolve conflicts among divorcing couples, especially regarding child custody.

Binding Versus Non Binding Arbitration

Unlike mediation, the decision of an arbitrator is often legally binding. However, some conflicts permit the final agreement to happen between parties. In other words, in nonbinding arbitration, the arbitrator presents a decision and ask both parties to accept it. If each party agrees with the decision, it becomes binding.

What Is the Arbitration Process?

Arbitration is straightforward. The process consists of seven steps:

  1. Initial pleading: Before filing for arbitration, you must create a Statement of Claim. This document explains the dispute from your perspective. You need to state how the other party harmed you and the damages you are seeking. While the statement sounds like a simple proclamation, it is the foundation of your claim and needs to be specific and accurate.
  2. Answer: The other party will have an opportunity to respond to your claims. The answer is their perspective of the dispute and what they expect from arbitration.
  3. Panel individual selection: Both parties will have the chance to review a list of potential arbitrators to sit on the arbitration panel. The size of the board often relates to the amount of the claim. 
  4. Scheduling: Once the parties agree on an arbitrator or panel, a pre-hearing is scheduled to determine preliminary deadlines. During this initial meeting, each side can request timelines, documents, and the final hearing date.
  5. Discovery: This is the pre-arbitration phase when each side prepares for their arguments and the final hearing. During this time, each party collects documents, interviews witnesses, and frames their views for the arbitrator.
  6. Trial prep: This is the final preparation and review stage before the hearing. During this phase, you will review your claim, searching for any holes in your argument. You want to remove any possible surprises or find ways to combat them. During this phase, you will also prepare any exhibits or aids.
  7. Final hearing: While it sounds singular, the final hearing can last anywhere between an afternoon and a week or more. Each side presents its case and gives its best shot at convincing the arbitrator or panel. After the claimant provides their argument, and the respondent gives their answer, the arbitrator or panel reviews the evidence to make a decision. Depending on the type of arbitration, the verdict or finding is either binding or nonbinding.

Advantages and Disadvantages

A trial will lead to a resolution. However, arbitration has several advantages over a court case:

  • Less expense
  • Quicker resolution
  • Arbitrator selection
  • Privacy
  • Limited appeal opportunities

The advantages of the process make it appealing. Unfortunately, as with most things, there are disadvantages:

  • Expanded rules of evidence
  • Uneconomical for some cases with low claim values
  • No cross-examination
  • Limited discovery

Why Should You Consider Getting a Lawyer for Arbitration?

While you do not need a lawyer for arbitration, having one is still an excellent idea. The conflict resolution process is adversarial, and it is beneficial to have someone familiar with contract law on your side, regardless of the other side’s decision. You need someone to help you formulate a strong legal defense of your claim, and it helps when that person is an educated, neutral party.

Work With an Experienced Local Lawyer

You do not want to work with just any attorney. It is essential to find a lawyer with experience related to your conflict. Therefore, if dealing with a family dispute, find someone specializing in family law, or if arguing over contracts, find an attorney knowledgeable in contract law. Submit a request online or call us today at (866) 345-6784 to get in touch with an experienced lawyer in your area!

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