What is arbitration?
Arbitration is a legal proceeding by which parties may resolve disputes without going to court. As with most other forms of alternative dispute resolution, and unlike the judicial system, both parties agree to settle their differences through arbitration.
Overall, arbitration proceedings are similar to those of a trial court except for these following important differences:
No judge or jury
When parties agree to arbitrate a dispute, they also agree upon an arbitrator to hear the case. Arbitrators act in the place of both judges and juries, handing down verdicts and issuing awards. Arbitrators may work independently or may be hired through an arbitration firm.
Final decisions are difficult to appeal
An arbitrator’s ruling may be overturned by a court only when it can be shown that the arbitrator acted with clear disregard of the law, a very high standard. Even when an arbitrator applied an incorrect legal standard, or arguably has a conflict of interest with either the litigants or the nature of the case, the ruling will be allowed to stand as long as the arbitrator acted in good faith.
Beware of bias
Arbitrators are paid by both of the parties litigating the dispute. In some cases, a company will use the same arbitration firm so long as it continues to receive favorable rulings. This may lead to the arbitrator exhibiting bias in favor of the company and against the consumer
Read the fine print
Sometimes a consumer will sign away his right to a jury trial without even realizing what he has done. Companies may bury these “arbitration agreements” in sales or finance contracts. For example, when someone purchases a computer online, she is likely waiving any right to bring a claim against the vendor in court and agreeing to arbitrate all disputes. The agreement states that a consumer has waived any right to bring suit against the company outside of arbitration. The agreement will usually name the company’s choice of arbitrator as well.
Consumer must pay arbitration fee
Some consider arbitration to be a low cost alternative to settling disputes in court. However, a company may also include a provision in the arbitration agreement that requires the consumer to pay for any arbitration. This works to discourage consumers from pursuing small claims against the company.
Ultimately, consumers may have a difficult time avoiding arbitration. Companies from all areas of industry have arbitration clauses in their sales contracts: telecommunications, computer sales, insurance, and finance, just to name a few. As always, be sure to carefully read any contract before you sign it, and if you are uncertain about any terms in it, don’t be afraid to ask.