By Bill Swan, Principal Consultant

Dispute resolution options essentially have three formal mechanisms: litigation, arbitration, and mediation.  All are possible settlement forums for disputes, to preserve contracts, and to protect individuals and organizations.  However, there are some good reasons for choosing arbitration rather than court litigation, namely, for efficiency of time and expense.  Court litigation can be slower and more expensive.  Dispute resolution, which is quicker and less expensive, is often a more favorable solution, especially for small businesses.

Arbitration is an alternative to court litigation.  Essentially, the parties agree to have a third party settle the dispute without having to go to court.  Usually arbitration is less expensive, more expedient, and less formal.  Arbitration also has the advantage of being confidential as opposed to court cases, which can be public.  This can be important for a company or for individuals who wish to keep the matter private. 

With arbitration, much can be agreed upon in advance.  Some elements that can be freely selected and agreed to in advance include a neutral arbitrator in a neutral forum, applicable procedural rules, qualifications and the number of arbitrators, the venue, and the applicable law. In the international business context, the international enforcement of arbitral decisions and awards under the New York Convention is a major advantage, as not all jurisdictions recognize other foreign court decisions.  For instance, the US is not a party to any treaty or convention which recognizes foreign judgements, but contrarily, is a party to the New York Convention in which the arbitral awards and decisions are binding.

If a company is considering an arbitration clause within their contracts, it is advisable to work with legal counsel on the clause.  There are important elements which need to be considered, including:

  • Stating clearly that the parties have agreed to arbitration (and possibly, mediation as a precursor).
  • The clause should relate to the business of the contract as an “off-the-shelf” clause may not do well.  Plus, it is quite possible for your legal counsel to advise court litigation for the transaction going into contract.
  • Agreeing on important details, such as the forum, the rules that will govern, any institution that will administer the arbitration, applicable law and procedural law, how many arbitrators, and other important elements.  The point is to not leave out important details.
  • At the same time, it is important to not get too specific.  Otherwise, the clause may not be flexible enough to work with the variety of disputes which may arise.

Arbitration has become a growing alternative to court litigation. Both dispute mechanisms can be ideal solutions to the right circumstances, and sometimes they work together.  As in all legal matters, laws and application of law are constantly shifting to meet new realities and cultural norms.  Recently, in light of the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act, the US District Court for the Central District of Illinois rejected an employer’s request to send a sexual assault and sexual harassment claim, to arbitration.  The case must go to court.

If your business could use some help in matters dealing with your human resources, FIT HR may be able to help.  Where we recognize you need legal advice, we work with many excellent attorneys who can provide proper counsel for your circumstances.  Contact us anytime.  We would love to help!