Arbitration Agreements

December 15, 2020

By: Colin A. Walker

Arbitration is a dispute resolution process whereby a third party retained by the parties to a dispute, rather than a judge or jury, resolves the dispute. Arbitration is favored by the Federal Arbitration Act and similar state laws, and arbitration agreements, if properly drafted and administered, are enforceable under those laws. Arbitration agreements are governed primarily by contract law and the arbitrator must comply with the terms of the arbitration agreement. 

There are advantages and disadvantages to arbitration. Advantages include quick resolution and greater confidentiality—provided that the arbitration agreement contains provisions requiring that. Disadvantages include decreased ability to resolve disputes on pre-hearing motions such as motions to dismiss and limited opportunity to appeal or challenge an unfavorable award.

Some have cited lower cost as an advantage. This, however, is not necessarily the case. Arbitrators are usually experienced lawyers or other skilled professionals and usually charge a high hourly rate. If, as is sometimes the case, more than one arbitrator is to preside, the costs increase exponentially.  

Regarding arbitration procedures, since arbitration depends primarily on the terms of the arbitration agreement, discovery and other procedures may be more limited, but the arbitration agreement could provide for the full panoply of procedures available under the Rules of Civil procedure. This cuts both ways and should be carefully considered by both the company and the C-Level executive during contract negotiations.