Executory Arbitration: Advantages and Disadvantages

Introduction

Arbitration is an alternative method of dispute resolution which is usually conducted outside judiciary courts. The conflicting parties must first agree to resolve their conflicts through this method, and the arbitrator is usually neutral regarding the issue of contention. Although the arbitrator could be a member of the judiciary, he/she does not assume the responsibilities of a judge during arbitration proceedings. Organizations often keep the arbitration clause under wraps when presenting the terms of the agreement to the employees. This makes the employees lose their powers of suing the organization in a court of law in case of any offense. According to Agus (2018), an arbitration award or decision legally binds both parties and can be enforced in a court of law. However, the parties may stipulate that the arbitration process and award are non-binding. This memo explains the advantages and disadvantages of executory arbitration, its legality, its perception by the general public, and its implications.

Advantages and Disadvantages of Executory Arbitration

One of the advantages of executory arbitration is that it is flexible and efficient. Normally, procuring a date for a court trial takes a long time due to many cases and other court procedures. In other words, a court award regarding a dispute is thus delayed. In contrast, arbitration cases are resolved sooner since there are limited backlogged cases. Additionally, the scheduling of arbitration is based on the availability of both parties. Second, executory arbitration maintains the privacy of the information raised during dispute resolution (Baykitch & Bao, 2019). This keeps sensitive details confidential and only between the involved parties. Another advantage of arbitration is impartiality. The provision for the involved parties to choose an arbitrator together allows them to select the one they are confident will be unbiased and impartial.

On the other hand, executory arbitration has some disadvantages. First, its fairness can be questionable, for example, where there is a subjective arbitrator and unbalanced arbitration clauses. Second, the finality of the arbitration decision limits the chances for appeal, especially when the arbitration is binding. The party that feels unflavoured by the decision thus loses its power to appeal. Another disadvantage of arbitration is its unpredictability. For instance, the arbitrator may consider some evidence relevant, which would be insignificant in a court trial (Baykitch & Bao, 2019). Additionally, there is limited time to cross-examine the evidence presented in documents with witnesses’ statements.

Alternatives to Executory Arbitration

Although arbitration is an effective and flexible method of conflict resolution, other alternatives are worth considering. For instance, the mediation method, which is less formal compared to arbitration helps in the resolution of disputes. In this method, the mediator does not impose a binding decision on the disputing parties. Instead, he/she facilitates a conversation between them until they resolve (Agus, 2018). Although the mediator proposes suggestions based on the understanding of the case, the parties are not obliged to accept the suggestions.

The Legality of Executory Arbitration

Executory arbitration is a final, legally binding procedure for dispute resolution among two or more parties. Although the case is resolved outside the court of law, the arbitrator’s decision marks the closure of the case, and the parties must accept the final arbitration award. In mandatory arbitration, the conflicting parties are required to waive some of their rights (Benedettelli, 2016). For instance, the provision of arbitration in a contract demands that the parties involved must drop their rights to use when they feel wronged. Instead, they should resolve their cases through arbitration only.

Additionally, the decision of an arbitrator is considered final, thus leaving no room for an appeal if one party feels dissatisfied with the award. However, in a binding arbitration clause, the parties involved are allowed to file for appeal whenever they feel dissatisfied with the decision. This must be done within the specified time in the arbitration clause (Benedettelli, 2016). Finally, the Federal Arbitration Act and some state laws provide directions on how an arbiter’s award can be corrected, modified, or vacated.

Circumstances Under Which Arbitration is not Enforceable

One of the circumstances in which arbitration is not enforceable is if it is not in writing. The key formal requirements of arbitration state that it must be in a written form, which includes a printed document, an exchange of letters, telex, electronic mail, or other forms of digital telecommunication that provide a record of the agreement. Another incidence when arbitration is not enforceable is when its requirements are not indicated in separate arbitration documents (Betancourt, 2018). In a situation where the written clause is not included in the main contract or separate document, then the subject party lacks legal grounds to file a claim.

Finally, the parties involved must agree to the arbitration clause as the method of conflict resolution. This agreement can be attested when the parties append their signature either to the arbitrary clause document or a separate document, including those communicated through telecommunication (Betancourt, 2018). In an event where one of the parties disagrees with this method, then the arbitration clause cannot be enforced.

Perception of Executory Arbitration Among the General Public

Executory arbitration is a common method of conflict resolution in many financial institutions and generally the business sectors. Most people consider arbitration methods as being unfair as in most cases they favor the institutions instead of the employees. According to Hirsch (2017), arbitration involves unfair dealings especially in financial institutions due to a lack of objective processes for selecting the arbitrator. When the case is between a junior employee and the employer, most definitely the case is ruled in favor of the employer.

Additionally, arbitration curtails customers’ and employees’ rights of joining class-action lawsuits, especially in mandatory binding arbitration clauses. To achieve this, most companies bury arbitration details deep in the contract terms to ensure that they are not readily accessed. Similarly, arbitration requirements are not well understood by the majority of the general public, yet employers disclose very few details about the same (Hirsch, 2017). Finally, the arbitration award may not always be objective and this leads to impartiality and bias. Arbitrators are not bound to follow any legal procedures when resolving disputes. Due to this privacy, their final orders are usually quiet and at times with limited chances for appeal.

Generally, arbitration is considered unfair by the general public, especially those who understand what it entails. The consequence of adopting arbitration as a method of dispute resolution is that it may scare away qualified employees. People who understand the requirements of the arbitration clause will not choose to work for institutions that adopt this method as they are much aware of their rights. In other words, this is a potential for loss in terms of the organization’s productivity and delivery of quality services. Similarly, the perception of the organization to the general public may change, and this may lead to the loss of clients. On the other side, the arbitration will work in favor of the organization, ensuring that threats from employees joining class-action lawsuits are maintained low. Lastly, arbitration is cost-effective compared to court trials and this allows the organization to save more.

Implications of Arbitration

As mentioned earlier, the process of arbitration is done privately with only the involved parties having the authority to determine who should be present during the hearing. During the actual arbitration process, the media, and the public are kept out of the discussion (Horton, 2022). The arbitrator’s final decisions, also called arbiter’s award does not form a binding precedent. Although arbitrators could be members of the judiciary, they do not act as judges during arbitrations.

Conclusion

Regarding the privacy of arbitration proceedings and decisions, only the process is kept private but not the final decision. According to Jain (2020), arbitration is not inherently a confidential process although it is kept private between the involved parties and invites them during the process. The employees can therefore disclose the information discussed in arbitration hearings to other parties without the company’s consent. However, the confidentiality of the information discussed during the hearings is only guaranteed if both parties have agreed by signing a non-disclosure confidentiality clause. The non-disclosure clause must in that case stipulate all the requirements of confidentiality. Other than this provision, the employees can comfortably disclose the information to third parties or even publicize the substance of the entire arbitration process.

References

Agus, A. (2018). Embodiment principles of clearing justice in consumer arbitration. Hasanuddin Law Review, 4(3), 383. Web.

Baykitch, A., & Bao, E. (2019). A return to innate arbitration culture: Implications from a cost and efficiency perspective. Arbitration International, 35(1), 57–78. Web.

Benedettelli, M. V. (2016). Applying the UNIDROIT principles in international arbitration: An exercise in conflicts. Journal of International Arbitration, 33(Issue 6), 653–686. Web.

Betancourt, J. C. (2018). Damages for breach of an international arbitration agreement under English arbitration law. Arbitration International, 34(4), 511–532. Web.

Hirsch, M. (2017). The sociological dimension of international arbitration: The investment arbitration culture. SSRN Electronic Journal. Web.

Horton, D. (2022). Forced remote arbitration. SSRN Electronic Journal. Web.

Jain, S. (2020). Principles of international commercial arbitration. SSRN Electronic Journal. Web.