Arbitration has become a popular method for resolving business disputes, offering an alternative to traditional court proceedings. In fact, the Economic Policy Institute reported that nearly 54% of private-sector, nonunion employers and 65% of companies with more than 1,000 employees have mandatory arbitration procedures.
Arbitration involves an independent arbitrator who listens to both sides of a dispute and makes a decision. Despite its growing popularity, several misconceptions about arbitration persist. These misunderstandings can lead business owners to make uninformed decisions about how to handle disputes. Understanding what arbitration is and what it is not is important for any business owner.
Misconception #1: Arbitration is always less expensive than court
Many people believe arbitration is always a cheaper alternative to court proceedings. While it can be cost-effective, this is not a guarantee. The costs depend on various factors, including the complexity of the case, the arbitrator’s fees and the length of the process.
Misconception #2: Arbitration is informal and does not follow legal procedures
Another misconception is that arbitration is an informal process. Many also believe that it does not follow legal procedures. In reality, arbitration can be quite formal and arbitrators often follow procedures similar to those in court. They consider evidence, hear testimonies and make legally binding decisions.
Misconception #3: Arbitration decisions are not binding
Some believe that arbitration decisions are suggestions rather than enforceable verdicts. However, arbitration decisions are usually binding and enforceable in the same way as court judgments. Once parties agree to arbitration, they typically must abide by the arbitrator’s decision.
Misconception #4: Arbitration always favors businesses over individuals
There is a myth that arbitration favors businesses over individuals. Arbitrators are neutral parties and base their decisions on the merits of the case, not favoritism. Both parties in a dispute have equal opportunity to present their case.
Arbitration is a valuable tool for resolving business disputes, but it is important to approach it with a clear understanding. By debunking these misconceptions, businesses can make more informed decisions about using arbitration. Each dispute is unique, and arbitration may or may not be the best resolution method.