Using arbitration to settle business disputes

If your California business runs into conflict with a customer, an employee or another business, it is reasonable to feel anxious and to have many questions about what will happen. A lawsuit could potentially devastate your business, not to mention the personal toll it can take. Despite your standing in the dispute, you can never be certain of the outcome of a civil trial.

Many businesses include in their contracts the requirement for bringing disputes to arbitration before taking them to the courtroom. This is because arbitration agreements often protect businesses from class action lawsuits. However, before agreeing to this method of conflict resolution, you may want to know more about the process and its benefits.

What to expect

While arbitration has its similarities with mediation, including having a neutral third party hearing both sides, there are important differences, including the fact that the decisions in arbitration are typically legally binding. In mediation, you and your opponent try to arrive at your own resolution, but in arbitration, the neutral party is the one who makes the decision.

You and the other party, along with the arbitrator, may decide on the rules to follow, or the arbitrator may use standardized rubrics from the American Arbitration Association, which has various sets of rules for arbitration, depending on whether you are involved in an employment issue, consumer dispute or another type of conflict. The process generally follows these steps:

• You receive a notice (or send a notice) demanding arbitration with the other party.
• You and your opponent agree on an arbitrator.
• The arbitrator holds a preliminary hearing to schedule depositions, obtain an overview of the case and outline the type of evidence he or she will accept from each side.
• You and the other party will prepare your respective cases and exchange relevant information.
• You and the other party meet for your scheduled hearing before the arbitrator to present your case.

The arbitrator will close the hearing when he or she has the information necessary to make a decision, and you will receive a date for when the arbitrator will close the case. You will receive a written notice of the decision, which is usually legally binding, meaning you may not have the option to appeal unless you can prove the arbitrator did not act fairly.

Increase your chance of success

The outcome of arbitration is private, which may benefit you if the details of the conflict could do harm to you or the reputation of your business. For the best opportunity for success, you always have the option of obtaining legal counsel to help you prepare your case and evaluate the evidence your opponent will present.