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What is Arbitration?

Arbitration is an alternative dispute resolution process in which one or more impartial third parties (arbitrators) hear evidence from two parties concerning a legal dispute and then issue a final, binding decision or award that dictates who gets what. In some instances, the arbitrator may also accompany the award with an opinion explaining the reasoning that led to the award. Many contracts include a mandatory arbitration clause that requires each party to submit any related dispute to arbitration and waive the right to file a lawsuit.

Why Choose Arbitration
What Types of Disputes can be Arbitrated
How to Begin Arbitration
Important Aspects to Consider
The Cost of Arbitration

Why Choose Arbitration

Studies show that arbitration is faster, less expensive and less disruptive than litigation. In a recent Roper Starch survey, 59% of respondents selected arbitration over litigation as the preferred method of resolving financial claims. 83% selected arbitration when informed they could save ¾ of the cost of litigation. 92% of arbitration participants responded favorably to the experience.

What Types of Disputes Can be Arbitrated

Arbitration is a common practice in labor disputes, but almost any type of dispute can be resolved through arbitration. In fact some agreements contain mandatory arbitration clauses related to resolving any underlying disputes. Some courts even use arbitration (or mediation) to resolve civil disputes. In New York City, small claims court has an automatic arbitration alternative to awaiting a judicial hearing. Following are some examples of commonly arbitrated disputes:

  • Securities and financial industry disputes
  • Employment claims
  • Uninsured Motorist Claims
  • Commercial transactions
  • Divorce cases

How to Begin Arbitration

If you are in dispute with another party and informal negotiation fails to yield a resolution, one party may suggest arbitration. Each party can then decide whether arbitration will satisfy his or her objectives.

If both parties agree to arbitration, the next step is to select the arbitrator. Many professionals now offer their services as arbitrators and there are organizations such as the American Arbitration Association, JAMS End Dispute and National Arbitration and Mediation which are organized specifically to help people resolve their disputes.

Important Aspects of Arbitration for Consideration

  • The arbitrator's award and opinion is not reviewable by a court.
  • Each side waives their right to appeal in order to submit the dispute to arbitration.
  • Arbitration is a substitute for both the trial and appeal of the trial court's decision.
  • If a party disagrees with the arbitrator's decision, they can attempt to have a court vacate the arbitrator's decision. But in order to do so, one must prove that the arbitrator's decision was arbitrary and capricious, a very high legal standard of proof.
  • Rarely will a court overturn or vacate an arbitrator's decision.

The Cost of Arbitration

The cost of arbitration is usually limited to the fee set by the arbitrator and can vary widely. Most often, the cost of arbitration is based upon the amount in dispute, but will usually be much less than the costs incurred in a lawsuit.