Arbitration

What are Some of the Drawbacks of Arbitration?

There are no guarantees that arbitration will be a fair process. As noted, once a decision is rendered in a binding arbitration, the parties are generally stuck with that decision. Without the right to appeal, there is always the risk of being subject to the whims and prejudices of the arbitrator. Overall, this is probably the biggest drawback to the arbitration process.

Identifying other drawbacks will typically depend upon which side of the fence you are on. For example, if a party were concerned about a large jury verdict in the event a dispute ever arose, that party would negotiate for an arbitration clause so as to keep things out of court if a dispute happens to arise. For example, in view of the potential for a large jury verdict on a wrongful termination case, this might explain why an employer would want an arbitration clause in an employment contract. Given the potential for a large jury award on a malpractice action, this would also help to explain why a medical provider would want a patient to sign an arbitration clause.

Ironically enough, the rationale for having an arbitration clause in the first place may actually encourage parties to fight about something where a dispute otherwise could have been avoided. In the absence of an arbitration clause, the parties may be more inclined to compromise rather than pursue an expensive lawsuit. If arbitration is an option, though, there may not be the same deterrents and the parties may simply elect to fight about something rather than try to work out their differences more informally.