Disadvantages of Arbitration

Finality. Arbitrators, unlike judges, need not give formal reasons for their decisions. They are not required to maintain a formal record of the proceedings. The arbitrator's decision is binding. This means that an appeal cannot be taken if you lose the case or disagree with the size of the award except in a few extraordinary circumstances where arbitrator misconduct, dishonesty, or bias can be proved.

Arbitrator selection. The parties sometimes agree that each will select its own arbitrator. In such cases it may be assumed that the chosen arbitrators are more sympathetic to one side than the other. However, arbitrators are usually selected from a list of neutral names supplied by the AAA. This method generally eliminates bias.

Loss of sympathetic juries. Some knowledgeable lawyers believe that juries tend to empathize more with certain kinds of people such as fired employees, destitute wives, and older individuals. Arbitrators are usually successful lawyers and business people whose philosophical orientation may lean more toward companies rather than individuals.

Loss of discovery devices. Some claimants must rely upon an adversary's documents and records to prove their case. For example, sales agents, authors, patent holders, and others often depend upon their company's (or licensee's) sales figures and accurate record keeping to determine how much commission and royalties they are owed. The same is true for minority shareholders who seek a proper assessment of a company's profit picture.

These people may find a disadvantage in the arbitration process. Trial lawyers have ample opportunity to view the private books and records of an adversary long before the day of the trial. This is accomplished by pre-trial discovery devices, which include interrogatories, depositions, and notices to produce documents for inspection and copying. However, these devices are not readily available to litigants in arbitration. In many instances, records are not available for inspection until the day of the arbitration hearing, This makes it difficult to detect whether they are accurate and complete. And, it is often up the arbitrator's discretion whether to grant an adjournment for the purposes of reviewing such records. Such requests may be refused.

Sexual harassment and sex discrimination issues are currently being resolved in arbitration as well as by litigation. Often an employee prefers that her matter not be resolved through arbitration because punitive and other special damages are not granted in an arbitrator's award in many states. However, if you signed an employment agreement containing an arbitration clause, you may be forced to arbitrate your case (including claims made by a fired employee for age discrimination under the Age Discrimination in Employment Act).

Tip: Courts favor resolving cases through arbitration when agreed beforehand by the parties. Thus, it is essential to understand the ramifications of signing any employment agreement or contract containing an arbitration clause.