What are the Advantages and Disadvantages of Arbitration?

Arbitration has its pluses. It also has its minuses. Over the years and having participated in numerous arbitration cases and having served as a court-appointed mediator, I have had the opportunity to reflect on the pros and cons of arbitration and have created this page to itemize these advantages and disadvantages of arbitration for you to consider.  I hope my experience gives you insight as to whether choosing arbitration is right for you (if you have a choice).

Advantages of Arbitration

1)     Speed: The primary benefit of arbitration is its speed. Cases are generally resolved in months, not years. Today, parties to a traditional lawsuit in NJ are subject to multi-year delays in the courtrooms of this state.  It’s frustrating, tedious, and expensive.

The scheduling of the arbitration hearing can be set by the parties themselves in conjunction with the arbitrator. Generally, the entire arbitration process from beginning to end takes less than 6-12 months.

2)     Simplicity: The procedural rules of arbitration are (much) less formal than those of the legal system, and disputes that arise during arbitration can be resolved much faster by the arbitrator rather than under the NJ Rules of Civil Procedure and a judge.  Another benefit is that the parties of the proceeding can negotiate the terms and conditions by themselves and/or with their attorney (if represented) and customize the arbitration process.

3)     Costs: The cost of arbitration is also (generally) less expensive than the cost of traditional courtroom litigation. However, one must consider the potential for high filing fees imposed by the various arbitration associations when doing the cost-benefit analysis.  In addition, the parties must pay the hourly rate of the arbitrator which is shared by the parties. The filing fee is often based on the dollar amount of the dispute.  Understanding the fees of the arbitration process should be an important consideration in your decision-making.

4)     Privacy: The arbitration process provides the parties with total secrecy since arbitration is done privately between the parties and none of the filings is a public record. Traditional filings in the NJ court system are always considered to be public records absent a secrecy order of the court. Privacy is advantageous when the parties are seeking to protect trade secrets and other confidential business information, or the litigation has the potential to be embarrassing.

5)     Finality: Because of the limited nature of the judicial review of arbitration awards, an additional advantage of the arbitration process is finality. Basically, the arbitrator’s decision is final and non-appealable, except in very limited circumstances. Instead of a case taking years from beginning to end (appeal of appeals, motion to vacate, etc.), a final decision is reached generally within 6-12 months.

Disadvantages of Arbitration in NJ

There are definitely disadvantages to arbitration or “traps” that the inexperienced party or their counsel may not appreciate when leading to arbitration.  They are:

1)   A Marginally Competent/Experienced Arbitrator with Lots of “Discretion”. The biggest disadvantage is the unpredictability and the limited opportunity for judicial review of an unfavorable or outright bad arbitration award. Many arbitrators are not attorneys and even if they are attorneys, they may not be “good attorneys” and, therefore, may be limited in their attention to detail and fact-finding. Even worse, these arbitrators have very few limitations to their discretion and decision-making during the course of the arbitration process absent prior restraints imposed by legal counsel for each participant. Unless the parties stipulate to applicable legal principals in their agreement to arbitrate, like the NJ Court Rules of Evidence, Judicial Appeal of Arbitration Decision, etc., arbitrators often do not follow the law, and disputes are often decided solely upon an arbitrator’s view of what is “right” or “fair”. Many parties who select arbitration as their method for dispute resolution are unaware that their dispute will not necessarily be resolved in accordance with New Jersey substantive law. Ultimately, there is no guarantee that a party with the law on their side will obtain a favorable outcome.

2)   Inadequate Opportunity for Discovery: A further disadvantage of arbitration absent a prior agreement between the parties is the limited use of traditional discovery techniques and procedures available in the NJ courts. Although the Federal Rules of Civil Procedure, as well as the New Jersey Rules of Court, allow for liberal discovery in court actions, there are no specific provisions permitting discovery in proceedings under the New Jersey Arbitration Act or the Federal Arbitration Act. Generally, discovery is available to parties in arbitration proceedings if the parties agree or the arbitrator orders it. New Jersey has no law or procedure that guarantees basic discovery rights in an arbitration proceeding. It’s all up to the discretion of the arbitrator or the parties if they can stipulate discovery procedures or it is addressed in their arbitration agreement.

3)   The Non-Applicability of the NJ Rules of Evidence in Arbitration Cases in NJ: The NJ Rules of Evidence do not apply in arbitration proceedings absent agreement of the parties. This can be either an advantage or a disadvantage of arbitration. Basically, the arbitrator will consider everything he/she deems relevant to the disputed case. An experienced and knowledgeable arbitrator in the subject matter of the hearing can mitigate this harm and then the absence of the NJ Rules of Evidence is less of a problem in reaching a just result. The key to a meaningful arbitration proceeding is the selection of an experienced NJ arbitration attorney and an experienced subject matter arbitrator who can identify in advance and incorporate important conditions to the conduct of the arbitration proceeding (when possible) to avoid the catastrophic selection of a poorly qualified or biased arbitrator.

Need to learn more about the law of arbitration in NJ and its benefits and disadvantages?

Fredrick P. Niemann Esq.

If so, contact Fredrick P. Niemann, Esq. toll-free at (855) 376-5291.  Email him at fniemann@hnlawfirm.com to schedule a consultation about your particular arbitration matter.  He welcomes your calls and inquiries and you’ll find him very approachable and easy to talk to.