Pros and cons of arbitrating business disputes

Disputes with partners, employees and other businesses can disrupt a company’s operations and divert resources away from critical functions. Thus, most California business owners utilize strategies to minimize the toll of a legal dispute.

One strategy is to use arbitration agreements.

How can arbitration agreements help businesses?

An arbitration agreement means that parties agree not to litigate conflicts or disputes that arise and instead go through arbitration.

Arbitration is a process of resolving disputes with a neutral arbitrator, not a judge or jury. Both parties agree to participate, often in a written agreement. It is more formal than mediation and less formal than litigation.

This process can have several benefits for a business, including:

  • Being more efficient
  • Being less expensive
  • Relying on an arbitrator rather than judges or juries who often favor parties like employees
  • Confidentiality
  • Involving fewer complications

Further, in binding arbitration cases, the ruling is final, which means the business will not continue to be plagued by appeals and contests afterward.

What are the drawbacks?

Despite the advantages of arbitration agreements, they are not suitable for every business in every situation. There are drawbacks to consider before implementing these.

First, the other party may refuse to agree to arbitrate disputes. This refusal could cost you the partnership, transaction or hiring prospect you wanted.

And the same limits that arbitration can put on other parties apply to businesses, as well. In other words, if you disagree with an arbitrator’s decision, you may have no options to appeal.

It is also worth noting that forcing others into arbitration could put your company under public scrutiny. For instance, the U.S. Supreme Court agreed to hear a case involving Taco Bell, its use of arbitration agreements and how they affect the wage violation accusations against the restaurant chain. The case has called even more attention to the unflattering allegations from former employees.

Is arbitration right for your business?

With all this in mind, business owners should proceed with caution when creating and enforcing arbitration agreements and make informed decisions based on what is best for their company.

Understand, too, that arbitration agreements are just one option that may or may not work for a business. Exploring these and others can ensure you have the appropriate protections in place.