I often have people come into my office with contracts they want me to review because they are either being sued or want to sue someone. Many times, these contracts contain “arbitration clauses” that totally change the structure of contract disputes.

At its core, arbitration is a form of what is called “alternative dispute resolution.” An arbitration provision in a contract usually means both parties agree that if a dispute arises between them, the matter will not be heard in court but by one or more independent third parties called “arbitrators.” Arbitration is basically an alternative to court action, and generally, just as final and binding.

Supporters of arbitration maintain it has many advantages over traditional court actions. For example, parties can choose a technical person as arbitrator if the dispute is of a technical nature so that the evidence will be more easily understood. Further, arbitration can usually be heard more quickly than court proceedings. Arbitration hearings are confidential, private meetings in which the media and members of the public are not able to attend. Final decisions are not published, nor are they directly accessible. Finally, hearings can be arranged at times and places to suit the parties.

There are disadvantages to the arbitration process. If a matter is referred to arbitration, one or both of the parties will pay for the arbitrator's services. In fact, the fees for an arbitrator can be hefty. The maximum fee can reach ten percent of the claim. On the other hand, the court system does not charge a fee other than filing costs (usually a few hundred dollars). Further, unless there is evidence of outright corruption or fraud, an arbitration award is binding. Therefore, if the arbitrator makes a mistake, or is simply an idiot, the losing party usually has no remedy. Additionally, many people do not like the idea of giving up their constitutional right to a trial by jury.

The process of arbitration differs among cases. Usually, the process is started through a request by one party for a dispute to be referred to arbitration. Arbitrators are then usually chosen by the disputing parties. The parties then go through a “discovery” process wherein they exchange documents and information important to the case. Next, a hearing is set up by the arbitrators. The hearing is a meeting in which the arbitrators listen to arguments, question witnesses and ask for clarification of any information. Both parties are entitled to present their case and hear the other side state theirs. The lawyers of both parties then usually provide the arbitrators with a summary of the evidence and applicable laws. These submissions are made either orally at the hearing or put in writing as soon as the hearing ends. The arbitrators then make their final decision and the case is over.