Is Binding Arbitration the Best Alternative to Civil Suits?
The word in the business community is that it is better to have binding arbitration of most cases, including contract disputes, rather than a legal trial. This is also known as Alternative Dispute Resolution, (ADR). Obviously, this saves on legal costs, and deals with a feeling of being too dependent on one's lawyer. Anyway it's good to have legal information.
So although not without its shortcomings, ADR generally promises a reduced amount of trouble than lawsuits. It is quicker, and more attuned to practices within a given industry, which the arbitrator is usually, and hopefully familiar with. It's like a non jury trial. The other alternative is mediation, which is not a legal proceeding at all; it is an attempt to bring the two parties together on a solution. If it fails, the next step is binding arbitration.
However, arbitration can sometimes be too much of a good thing, especially when it is mandatory. With binding arbitration, class action suits are banned, complaint periods are limited and it include filing fees. See for
legal information for small businesses.
An example of this backlash is a bill introduced by Congressman John Conyers on September 3, 2000, that addressed the problem of binding arbitration being forced onto car dealerships in their contracts with car manufacturers. The bill would make arbitration a voluntary procedure. The bill, the Fairness and Voluntary Arbitration Act, H.R. 534, deals with an amendment of the Federal Arbitration Act., which had prohibited binding arbitration. These restrictive contract terms are offered to the dealer on a take it or leave it basis, if the dealer wants to be an official dealership of a major car brand. Under this bill, the dealership has to consent in writing beforehand to binding arbitration.
What are the advantages of coming for a legal trial instead of ADR? You can get legal discovery of documents or other information that otherwise would be unavailable to you. Also, if a fundamental issue of law is involved, a trial is often necessary. One further option, if you want to avoid paying a lawyer for an extended, time-consuming trial, is to take your claim to small claims court. You may want to get legal advice before going to small claims court, but you do not need a lawyer to be present.
The use of binding arbitration in contracts is very common. In fact, sources claim that only 3% of civil cases are actually brought to trial. This is minus settlements out of court, or arbitration.
A typical business contract involving binding arbitration is one between a major telephone company and a small business. An example of this can be found at http://consumer.mci.com/mci_service_agreement .
This contract, between a small business and a phone carrier, which is typical for the industry, includes the clause that any dispute that is not resolved over 60 days "must be submitted to the American Arbitration Association (AAA), or to JAMS for a final and binding arbitration." JAMS is an arbitration and mediation organization, formed in 1979, which carries out ADR, as a complement to the court system.
