Arbitration is a form of alternative dispute resolution, through which individuals or parties attempt to settle a discrepancy outside of court, rather than through litigation. An impartial third party, often called an arbitrator, is selected to hear the evidence and testimonies of both sides and then determine an award. The term “binding,” in “binding arbitration,” means that all parties involved agree that the arbitrator’s decision is final.
In 1925, the Federal Arbitration Act, which is found in Title 9 of the U.S. Code, was enacted with the intention of resolving disputes between parties in a fair and quick manner with little to no room for appealing the decision. In litigation, there is a judge and jury and there is a judgment. But in arbitration, there is an arbitrator and there is an award. The parties involved in the dispute agree that the arbitrator’s decision is final and they give up the right to appeal the decision to a court. Arbitration lawyers realize that this may sometimes present problems in an individual’s case.
Arbitration may sometimes be a quick and necessary means of resolution. For example, if two parties-employee and employer, or consumer and corporation-both agree that arbitration is the optimal method of resolving any issues, then it could theoretically solve a dispute in a quick and preferred manner. But some people believe that it limits a consumer’s rights. Binding arbitration may not always be the fairest system it appears to be, especially in the 21st Century where terms and agreements (which may be up to 25 pages or more of legalese) can be agreed and confirmed in one simple click of a button. People may not realize what they’re getting themselves into.
Whether it’s an employee signing a contract to work for a new employer or a consumer signing an agreement with their cell phone provider, there may be a binding arbitration clause written in it. So if an issue eventually arises and arbitration is the only option, who chooses the arbitrator? Who appoints the one making the final decision? Most likely the party requiring the arbitration in the first place will. That’s where the situation gets complicated. The arbitrator may be third party, but are they really impartial? They could be, but they might have a bias toward the one who appointed them. That party is, after all, the one supplying the arbitrator with work. You would hope that everyone would act impartially and in an unbiased manner, but bias is ingrained in arbitration from the beginning. In litigation, there is a scrutinizing process known as voir dire by which jurors are questioned to determine that they are as unbiased and impartial as possible, but in arbitration the selection process is usually a little quicker and not nearly as in-depth. Although, arbitration laws may be different from state to state, and their requirements may differ.
Supporters of arbitration might point out that arbitration, in general, saves the courts time and money. And when mixed with its supposed efficiency, supporters may likely tout it as a favorable approach to alternative dispute resolution. But those opposing arbitration might most likely point to the questionable nature of the decisions made. The parties involved in arbitration are bound to the decision of the arbitrator and the determined award. Just like if you sign a contract with an insurance company for auto insurance, health insurance, or homeowner’s insurance, you should pay close attention to the contract and agreement. You may be limiting yourself to binding arbitration if there are any disputes down the road.
It may be a quick avenue of resolving disputes between parties and some may see it as preferable to the longer process of litigation, but binding arbitration may also involve waiving one’s rights to access the courts. It should never be considered lightly. As its name implies, it is a binding agreement, and individuals and parties must agree that the arbitrator’s decision is final.