What is arbitration?
UPDATED: February 20, 2013
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In the arbitration process one or more arbitrators hear evidence from the parties to a dispute and then issue an "award" that declares who gets what. In some instances, the arbitrator may also write an "opinion" explaining the reasoning that led to the award. The award and opinion cannot be reviewed by a court, and there is no appeal. Arbitration is a substitute for a trial and review of a trial court’s decision by appellate courts. It is different from mediation.
There are several very good reasons to use arbitration rather than go to a court trial. Arbitration is less expensive than a formal court hearing -- dramatically less. On average, a formal arbitration with one arbitrator, as of 2010, typically costs between two and three thousand dollars. An average trial from start to finish costs $19,000.
In addition, arbitration is private. This means that no one in the public will ever be made aware that there was even a dispute. This especially has benefits for private businesses who would rather not have their disputes dragged through the media.
Arbitrations are also more efficient. United States law requires that attorneys have the right to object to testimony and evidence during the course of a trial. In fact, if you’ve ever sat on a jury, you remember the drawn out bench meetings and recesses called to discuss these objections in detail. In an arbitration, there are no formal objections and all evidence is heard. This ensures that the case is truly decided on its merits instead of the arguing ability of the lawyers.
Another reason arbitration may (or may not) seem like a good choice is that arbitration is not binding. Even if you agree to go through binding arbitration, the decision is not actually binding if you completely disagree with it. In the case of binding arbitration, however, you will most likely be countersued in court for breach of contract. This is very different from a regular trial where, after the appeal is complete, the final decision is completely binding and enforced by the court.