Frustrated by how long it takes to get your lawsuit through the courts so you can get on with your life? How about hiring your own judge? That's essentially what happens when you submit a dispute to arbitration. Like mediation, which we discussed last month, arbitration is a form of alternative dispute resolution (ADR) that can be used to resolve disputes faster and less expensively than going to court. But while mediation involves hiring a neutral mediator to help you and the other party work out your own so-lution, arbitration is for those times when you just can't reach an agreement even with the help of a mediator.
Many companies have suppliers, employees and major customers sign agreements stating that any dispute that cannot be resolved through negotiation or mediation will go to binding arbitration. The parties agree on the arbitrators, typically people familiar with the industry, and effectively hire these people to serve as judges. The decisions they make are final.
Arbitration clauses, which for decades have been standard in collective bargaining agreements and in the securities industry, are now used in a wide range of business relationships. According to a 1998 study by the Cornell Institute's School of Industrial and Labor Relations, 90 percent of the corporations surveyed had used mediation, arbitration or both, and overwhelmingly preferred them to litigation regardless of the type of dispute.
"It's a cultural shift," says Nashville, Texas, attorney Larry Bridgesmith of Waller, Lansden, Dortch & Davis, a specialist in employment law and ADR. "This may become the normal way of resolving disputes."
For instance, companies where the senior executives have signed employment agreements often turn to arbitration to resolve disputes about compensation when an executive leaves the company, such as whether the company met certain goals that would trigger certain bonuses. Internet start-up firms typically arbitrate disputes with departing employees where the compensation package may have included assets, such as stock options, that are difficult to quantify. Many businesses have suppliers and customers sign arbitration agreements as a condition of doing business. And now, even employment discrimination and sexual harassment claims are sometimes submitted to arbitration.
Steven C. Bahls, dean of Capital University Law School in Columbus, Ohio, teaches entrepreneurship law. Freelance writer Jane Easter Bahls specializes in business and legal topics.