What are the advantages of arbitration?

Cite this article as: Jason Mance Gordon, "What are the advantages of arbitration?," in The Business Professor, updated January 7, 2015, last accessed March 30, 2020, https://thebusinessprofessor.com/knowledge-base/what-are-the-advantages-of-arbitration/.
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Advantages of Arbitration
This video explains why employing arbitration to resolve legal disputes is advantageous over litigation.

Next Article: Statutorily Mandated Arbitration


What are the advantages and disadvantages of arbitration?

There are numerous advantages and a few disadvantages of arbitration, as follows:

Expertise – Arbitrators are generally chosen based upon their expertise in the subject matter of the dispute. This is a key advantage over litigation, which generally involves the use of jurors as fact-finders. The jurors will lack the subject-matter knowledge of professional arbitrators chosen by the parties. Some argue that this fact makes it less likely that jurors will arrive at a fair and just result.

Resolution – Similar to litigation, in arbitration the parties lose control of the dispute resolution process. The benefit of this situation is that the arbitrators will decide the dispute and issue an award. This may give the parties comfort in knowing that the legal dispute will be resolved.

Costs – There may be significant cost savings associated with arbitrating rather than litigating a dispute. While the parties generally share the responsibility of paying the arbitrators, it avoids many of the court fees, legal fees, and other expenses associated with going to trial. The primary point of savings is the lack of formality in the discovery process. Generally, the arbitrators control the proceeding and request from the parties whatever evidence they require in deciding the dispute.

Privacy – As with other types of ADR, arbitration is a private process. The parties do not have to disclose the dispute or any of the facts of the situation to the rest of the world. Privacy in arbitration offers the same advantages and disadvantages as mediation.

Relationships – Arbitration can have the effect of preserving on-going business relationships. The parties may feel comfortable that the dispute is not decided arbitrarily, as experts are reviewing the facts and deciding the case. In this way, the parties are less likely to feel that they were treated unfairly by the system.

The above aspects of arbitration may be seen by a party as an advantage or disadvantage. For example, a party may hope to sway jurors by appealing to their emotions. This is not as easy when dealing with expert arbitrators who are more likely to apply the law without regard to personal emotions. Further, arbitration will lead to a decision on the dispute. One party may see this finality as a benefit, while other parties may want to retain the ability to continue negotiating a settlement.

Discussion: Do you think businesses generally prefer arbitration to litigation? Why or why not? Do you think individuals in a dispute with a business generally prefer litigation or arbitration? Why or why not?

Practice Question: Bernie and Hillary do business together. Unable to reach a compromise in a dispute, they decide to submit their issue to arbitration. What advantages does arbitration offer to Hillary and Bernie?

Proposed Answer

  • Arbitration allows the parties to choose an arbitrator. This gives them an equal opportunity to have someone they trust who is competent and knowledgeable to handle their matter. It also offers the parties privacy from the public unlike the public courtroom litigations. Arbitration, in comparison to litigation, is less expensive and easier to conclude. Where arbitration is successful and the parties agree that that award is binding, there are limited chances of an appeal.

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