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By agreeing to binding arbitration, you give up the right to sue in court and instead resolve disputes with an arbitrator. Arbitration is quicker and less formal but lacks certain protections and an appeals process. It can also be cheaper but fees should be considered.
By signing a contract subject to binding arbitration, you typically waive the right to sue the person with whom you are forming the agreement in court. You agree instead to go to an arbitrator to resolve any dispute that may arise under the agreement, which has various advantages and disadvantages. For example, while arbitration is typically quicker and less complicated, you won’t have rights that are normally protected by going through the typical adversarial process in court. Understanding the positives and negatives of agreeing to binding arbitration is important before deciding whether to do so.
The biggest advantage of arbitration over litigation is how quickly issues can be resolved, as the process is less formal and involves fewer necessary procedures than in litigation. The reason for this, however, is that procedures such as discovery, which allows each party to examine the other’s relevant documents for the purpose of building each case, are excluded from the arbitration process. Lack of findings could make it harder for you to build your case against the other party than if you were to dispute the issue.
The absence of procedures such as discovery makes the arbitration process much less formal than that of litigation, which many consider beneficial because the rules are simpler. However, the simplest rules can have their downsides. For example, one of the most common rules of evidence is that evidence that is more likely to be misunderstood than that which is relevant to the issue at issue in the case is generally inadmissible. Without rules of evidence in binding arbitration hearings, evidence that would otherwise not be admissible in a court case can be used to hurt you.
One feature of binding arbitration often praised as a positive is its relatively low cost. The absence of the need to pay an attorney in many cases, as well as its less time-consuming nature, makes arbitration generally cheaper than litigation. However, it can still be more expensive than expected, so it’s important to look into the arbitration fees that would likely apply in the event of a disagreement.
Perhaps the biggest disadvantage of binding arbitration is the absence of an appeals process. Typically, the only way to challenge a binding arbitration decision is through bribery or dishonesty. Otherwise, you will be contractually obligated to follow the arbitrator’s decision with no other option. While appeals can be costly and time-consuming, the fact that no decision is necessarily final is an advantage of litigation over arbitration.
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