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Arbitration, Should it be the New Litigation?

In 2013, the federal courts decided several cases that upheld arbitration clauses in commercial and employment contracts. These courts further upheld arbitration clauses that require individual as opposed to class action arbitration. Some dissenting United States Supreme Court Justices wrote that it may no longer be economically feasible for individuals to take on big corporations in arbitration.

While the use of arbitration clauses is likely on the rise as a result of these decisions, the process is not without its problems. The advocacy group, Public Citizen, questions the cost efficiency of arbitration, and notes court costs are generally lower than arbitration filing and administration fees. Lack of competition also drives up the costs of private arbitration forums.

While the discovery process in arbitration may be as complex as in a civil case, the tribunal's rules are not always as clear as the rules of civil procedure and it is often more difficult to effectively appeal a bad arbitration award. As a result of these problems, arbitration may cost more - and take longer - than a trial on the same issues in court. This may be good news for arbitrators and tribunals and bad news for the parties to the arbitration.

Companies need to discuss carefully with their counsel whether they want to take advantage of the recent legal precedent compelling arbitration. Cost conscious attorneys looking out for the business interests of their clients should consider the number of arbitrators that will be appointed by the appointed tribunal, the amount of fees that will be paid to the tribunal, the location of the arbitration in relation to the witnesses, and the potential need for an appeal in the event of a poor decision.

In short, the pros and cons of using arbitration clauses should be discussed carefully between attorney and client before any contract is signed. Arbitration may or may not always be the best option for you.

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