An arbitration agreement obligates the parties to engage in arbitration when a dispute arises between then, rather than resort to litigation. Orginally confined to large commercial disputes, it is increasingly used in business-to-consumer agreements as well.
Arbitration Advantages and Disadvantages
Arbitration involves far less discovery and procedural maneuvering than litigation. This can serve to level the playing field between businesses of unequal size, since it is harder for the larger business to simply grind its opponent into subjection. On the other hand, if one side is particularly in need of extensive discovery in order to build its case, arbitration can put it at a disadvantage.
Arbitrators are often better versed in the particular business area that is involved in a dispute compared to jurors or even judges. Not being able to appeal to a jury, however, can be a disadvantage to a consumer, an employee or investor in a dispute with a large company.
Arbitration proceedings and awards are private, which can be an advantage for both sides, but this aspect has been heavily criticized those those who believe that corporate wrongdoing is thereby kept from public scrutiny.
There is much more finality to an arbitration because the result is rarely subject to appeal. This is an advantage in terms of resolving disputes, but it leaves both sides vulnerable to an unjust decision, or one that simply ignores the law or facts. Arbitrators know that an appeal is virtually impossible, and so are sometimes inclines to make compromise decisions that give something to both sides, which can be frustrating to the side with a very strong case.
Once the arbitrator has heard the dispute and makes a decision, the winning party may file papers in court to have the decision "confirmed." A confirmation is enforceable as a court judgment. This confirmation proceeding must be filed within one year under the Federal Arbitration Act. Any objections to an arbitration decision must be filed within three months of the decision.