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Business Services Industry

And Arbitrated Justice For All

Entrepreneur, Dec, 2000 by Steven C. Bahls, Jane Easter Hauls

So long, court: The scales have tipped in favor of alternative dispute resolution.

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 solution, arbitration is for those times when you just can't reach an agreement even with the help of a mediator.

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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 startup 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.

CHEAP JUSTICE

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.

HOW IT WORKS

So what's arbitration like? After the initial period of requesting documents, the attorneys for each side write a brief summarizing their cases. The parties each have a chance to approve the arbitrators assigned to the case--typically a panel of three. At the proceeding, witnesses are examined and cross-examined under oath. But because the arbitrators are already experts in the field, there's less need for explaining background than there would be for a jury. Questioning of witnesses is more direct and focused, and the arbitrators may ask questions directly.

After closing arguments, the arbitrators typically have 30 days to issue their ruling, but you can get a decision on the same day if you make arrangements in advance. If the parties request a written finding of facts with legal reasoning and conclusion, the arbitrators provide one. Otherwise, their ruling simply states who the winner is and who gets what.

"The great thing about arbitration is that the parties control the process," says Schwartz. "They set it up ahead of time to meet their needs."

Business Services Industry

And Arbitrated Justice For All

Entrepreneur, Dec, 2000 by Steven C. Bahls, Jane Easter Hauls

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