One reason so many companies opt for arbitration is that it's both faster and cheaper than going to court. Instead of months of depositions, the process of discovery is normally limited to each side turning over requested documents. Arbitrating a dispute might be over in a few months rather than the several years a lawsuit often takes. And instead of trying to educate a jury, you present the case to arbitrators who are already familiar with your industry and with the issues involved-and less likely to issue a runaway verdict.
"You have much more control and efficiency for commercial disputes [using ADR]," says employment attorney Daniel L. Schwartz of Day, Berry & Howard in Stanford, Connecticut. As an entrepreneur, you also limit your exposure because arbitrators rarely have the authority to impose punitive damages. The decision of an arbitrator can't be appealed unless the arbitrator's ruling is so outrageous that it violates public policy to enforce it; however, truly unreasonable rulings are so rare, according to Bridgesmith, that companies are willing to take the risk.
On the other hand, because arbitration is less expensive than litigation, it's also easier for someone to file a claim against you. And if your arbitration policy commits your company to paying most of the expenses, you may in effect be inviting employees to initiate arbitration. Fortunately, this door swings both ways. It's also easier to defend a claim, so former employees and other people unhappy with your business are less likely to extort a settlement from you based on the cost of a lawsuit.