An arbitration agreement is a clause in a contract that allows the parties to settle disputes outside of the traditional court system. Arbitration is a form of alternative dispute resolution resembling a private trial, in which an arbitrator — a neutral party acceptable to both sides — makes a decision based on the evidence and testimony presented. In many contracts, arbitration is mandatory and the decision of the arbitrator is final and binding.
A mandatory arbitration clause limits the contracting parties’ right to take their disputes to court. Despite that waiver of rights, arbitration is advantageous for several reasons:
- Arbitration is generally faster and cheaper than litigation — Arbitration does have its cost, such as the arbitrator’s hourly fees and those of expert witnesses where needed. But the total expenses are likely to be far less than the cost of preparing for and going to trial. Arbitration cases also take less time, which means faster results and lower attorneys’ fees.
- Arbitration is less formal than litigation — Arbitration is not conducted according to the rules of law and procedure and an arbitrator is not bound by previously decided cases. Conformity to rules of evidence is not necessary because the arbitrator simply balances the relevance and significance of the evidence. This means cases are not frustrated by legal technicalities.
- Arbitration is usually a private proceeding — Arbitration provides privacy and confidentiality. This can be especially important if trade secrets or other sensitive information are discussed, admitted into evidence or otherwise made part of the dispute. Moreover, the parties can control who has access to the arbitrator’s opinion and the amount of damages awarded, if any. This is in contrast to formal litigation where a case is heard in front of a judge or jury in a courtroom, and all of the proceedings are open to the public.
- Arbitration allows more flexibility than litigation — An arbitration clause lets businesses choose their own jurisdiction for resolving disputes. This can be helpful since an arbitrator can be chosen who is familiar with the laws of the state where a company holds its principal place of business. In addition, the parties can select an arbitrator based on his or her expertise in a particular field. The parties can also agree to abide by certain outcomes. For example, they can enter a high/low agreement, under which plaintiffs cannot be awarded less than a base amount and defendants can cap their losses.
Whether or not arbitration is mandatory or the outcome is binding, having an arbitration clause can provide certainty and regularity for the parties. The overall advantage is that conflicts can be resolved without upsetting a valuable business relationship.
Clay Parker, Esq., represents Florida companies and their principal owners in business litigation and dispute resolution, including arbitration. Please call 407-216-2504 or contact us online to schedule an appointment at our Orlando office. In cases related to civil or business litigation, we offer a $50 initial consultation.