Arbitration, what is it exactly?

Arbitration, what is it exactly? The process known as arbitration has become extremely common in our society. However, people oftentimes don’t understand what arbitration entails. Arbitration is considered to be a form of alternative dispute resolution to the traditional process involving a judge and/or a jury.

Arbitration is a process whereby an arbitrator, presumably independent and neutral, will hear a dispute between the parties. The dispute can involve most anything ranging from divorces, employment problems, personal injuries etc. The key component to the arbitration process though is that the arbitrator will issue an award or ruling. The ruling is final and binding on the parties with very few exceptions.

In order to be required to arbitrate a dispute, the parties have to mutually agree to do so in writing. Whether both parties really mutually and voluntarily agreed to arbitrate a future dispute or legal claim is a question frequently asked and litigated over? In many commercial transactions, it is common practice for a business owner, such as a car dealership or a nursing home, to require customers and/or patients to execute an agreement to arbitrate any dispute that might arise from the transaction or service. When being presented with several pages of small print and asked to sign, people typically don’t read the entire document and usually only realize after it is too late that they agreed to arbitrate a dispute or legal claim. Courts usually rule that if you signed your name after being presented with the agreement and had an opportunity to read the document before doing so, then you are bound by it. What does this mean exactly? It means that if a dispute or legal claim arises from the transaction or provided service, then you will not be able to have your day in court so to speak. You will be required to have your dispute or claim decided by an arbitrator.  Most attorneys believe that individuals required to litigate a claim or dispute against a company or business through the arbitration process typically don’t come out as well as if they had been able to present their claim to a judge or jury. If this is true, it is easy to understand why business owners would want to have an arbitration provision in an agreement.

How can my right to a trial be taken away by an arbitration provision? This is a good question and was answered several years ago in a case before the U.S. Supreme Court, coincidentally arising from a transaction in Alabama. The U.S. Supreme Court held that commercial arbitration agreements are valid so long as the transaction or service affects “interstate commerce” and that affecting interstate commerce should be broadly construed in favor of upholding arbitration.

When presented with any agreement containing an arbitration provision, you should be aware of the consequences of signing such an agreement. If you are uncomfortable signing an agreement containing an arbitration provision, you should ask that the provision be removed. However, they will likely tell you that it cannot be removed and/or changed. The process of arbitration is here to stay whether we are in favor of it or not so know your rights and understand what you are giving up if the transaction eventually goes south and a dispute arises.