How do I Decide if I Should Agree to Binding Arbitration?

In signing a contract subject to binding arbitration, you are typically foregoing the right to sue the person with whom you are forming the agreement in court. Instead you are agreeing to go to an arbitrator to settle any dispute that may arise under the agreement, which has various advantages and disadvantages. For example, while arbitration is typically quicker and less complicated, you will not have the rights that are normally protected by going through the typical adversarial process in court. Understanding the positives and negatives of agreeing to binding arbitration is important before deciding if you should do so.

The biggest advantage of arbitration over litigation is how quickly issues may be settled, as the process is less formal and involves fewer necessary procedures than litigation. The reason for this, however, is that the procedures such as discovery, which allows each party to examine the relevant documents of the other for the purpose of building each case, are cut out of the arbitration process. The lack of discovery may make it harder for you to build your case against the other party than if you were litigate the issue.

The absence of procedures like discovery make the arbitration process much less formal than that of litigation, which many people view as a positive because the rules are simpler. Simpler rules can have their own down sides, however. For example, one of the most common rules of evidence is that evidence that is more likely to be misunderstood than is to be relevant to the question being litigated in the case is not generally admissible. With no rules of evidence in binding arbitration hearings, evidence that otherwise would not be admissible in a court case may be used to hurt you.

One characteristic of binding arbitration that is often lauded as a positive is the relatively lower cost. The absence of the necessity of paying a lawyer in many cases, as well as its less time-consuming nature, makes arbitration generally cheaper than litigation. It can still be more expensive than expected, however, so it is important to look into the arbitration fees that would likely be applied in the event there is a disagreement.

Possibly the biggest disadvantage of binding arbitration is the absence of an appeals process. Typically, the only way a binding arbitration decision may be appealed is through corruption or dishonesty. Otherwise, you will be contractually obligated to follow the decision of the arbitrator with no other recourse. Though appeals may be costly and time consuming, the fact that no decision is necessarily final is an advantage of litigation over arbitration.