Alternative dispute resolution (ADR) is a group of techniques that helps businesses and individuals to avoid the costly and time-consuming process of going to court. Within ADR, there are several different approaches. Mediation, for example, involves a neutral third party who consults with two or more disputants to assist in reaching a settlement. Businesses certainly use mediation to settle disputes. However, they more commonly use the ADR method of arbitration for reaching a binding decision. Instead of simply mediating, one or more arbitrators makes a legally binding decision on behalf of the disputants.
How Arbitration Works
In order for arbitration to be a valid and viable means of dispute resolution, both disputants must agree to arbitrate, either before or after a dispute arises. If one party is adamant about going to court, the other party will not be able to avoid litigation unless there is a pre-dispute contract in place requiring it.
Because of this, businesses often include binding arbitration as a provision in contracts. In this situation, one party to a dispute cannot simply change their mind about whether to arbitrate or not on a post-dispute basis. They must submit disputes to arbitrators according to the executed agreement.
There are many different types of arbitration. Most of them begin with the party who would otherwise be the plaintiff if the dispute were heard by a court of law. This party sends a notice of intent or demand to arbitrate to the party or parties who would otherwise be the defendant.
The defendant would then have a specified time period to agree or decline to arbitrate. If they agree, or their existing agreement requires arbitration, the disputants will then agree on an arbitrator. In some cases, this might be a panel of arbitrators.
In California, there are lawyer arbitrators and non-lawyer arbitrators. It is best to choose a lawyer arbitrator for their deep legal background and professional qualifications. Compare this with a non-lawyer arbitrator, who may have only taken a single course on arbitration. In arbitration proceedings, the parties can choose to represent themselves or hire legal counsel.
Arbitration vs. a Trial
The arbitration hearing itself is very similar to a trial. For example, both parties present evidence, give testimony, and offer arguments. Further, the parties bring forth witnesses. However, the rules and guidelines are much more lenient. What’s more, proceedings are accelerated as compared to appearing before a judge.
Disputants have the opportunity to share their sides of the story candidly. Additionally, little to no formal procedures are required, unless their agreement provides otherwise. Further, there is no jury in arbitration. The arbitrators will deliver a final decision following the hearing.
Arbitration vs. Mediation
Arbitration is not to be confused with mediation. A mediator facilitates a discussion and negotiations between disputants. This person guides the parties to their own resolution and decision. Disputants may visit a mediator several times during this process, separately or jointly. When mediation is not successful, litigation will often follow.
Arbitration, on the other hand, concludes with a legally binding decision made by the arbitrator or arbitrators. This decision may or may not be subject to an appeal. Essentially, arbitration is more structured than mediation, but less structured than litigation. Further, an outcome is guaranteed in arbitration. On the other hand, mediation can potentially lead to no resolution.
Benefits of Arbitration
Businesses widely use arbitration to resolve disputes without litigation. There are several reasons for this:
- Arbitration is typically much less expensive than litigation. Even in a complex arbitration case, with a top arbitration attorney and both sides hiring legal counsel, the costs will usually be noticeably less than those of a court hearing.
- Arbitration is faster and more efficient than litigation. That’s because there are fewer complications and requirements compared to court hearings.
- Arbitration offers many of the benefits of mediation. Plus, it has the additional benefit of a binding legal decision that both parties must adhere to.
- Arbitration takes place privately rather than in the public court system. The details, and even the decision, all remain confidential. This can be a critical benefit. For instance, most business leaders prefer their company information and conflicts remain out of public records.
- Arbitration allows the disputants to choose the arbitrator or arbitrators. On the other hand, the parties would have no say in choosing a judge.
Writing an Arbitration Clause into Business Contracts
A best practice in business is to include an arbitration clause in contracts with employees where this is enforceable. Additionally, contracts with partners, vendors, and, depending on the nature of the business, customers should also include arbitration clauses. A signed contract with an arbitration clause helps to protect a business from litigation. That’s because the agreement will state that the parties must resolve a legal matter through arbitration rather than in court.
At a minimum, the arbitration clause should clearly outline the following:
- Who will choose the the arbitrators and by what process
- Who will cover the costs and how they will pay
- Whether the arbitrators will be bound to legal precedent while making their decision
- Whether legal counsel will be permitted
- What the discovery process will allow and entail
- Special skills or qualifications the arbitrator must have
These are only the basics. There is much more to consider when writing an arbitration clause, especially for businesses that deal with many customers or clients on a daily basis.
Choosing an Arbitration Attorney
Whether you are preparing for an arbitration proceeding, seeking to add an arbitration clause to your business agreements, or both, it is important to hire an experienced arbitration attorney who will work diligently to help you avoid costly litigation. The San Diego business attorneys at Gehres Law Group, P.C. have assisted many clients in many different industries with arbitration and mediation. Their vast expertise makes them an all-encompassing resource for business-related matters. Schedule your free consultation online today, or give them a call.