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Advantages and Disadvantages of Arbitration in Disputes

Paper Type: Free Essay Subject: Law
Wordcount: 1402 words Published: 15th Jul 2021

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This memo will discuss the advantages and disadvantages of arbitration as compared to the standard litigation we have been forced to deal with recently. This memo also explains how executory arbitration is legal, and what cases would not fall into this form of Alternative Dispute Resolution (ADR) tool. In dealing with executory arbitration, there will be some pushback, but fix actions will be discussed in this memo. Lastly, this memo will cover the legal precedent that arbitration can form and how we can handle like cases.

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 Arbitration, is the use of an arbitrator to settle a dispute, is a binding form of ADR. The style of arbitration you wish to enforce would create an executory arbitration clause in any existing and new employment contracts. The benefits of arbitration are monetary savings with the ability to select when, where and how the arbitration will take place, selection of the arbitrators, the ability to escalate the decision if we wish to incur a penalty for such infraction. Other benefits include the ability to limit information on given awards, and the ability to file an express confidentiality agreement. Disadvantages include what people perceive as a power imbalance, privacy issues as parties are not bound to confidentiality, lack of appeals unless entering an incentive proceeding, and the fact we still may need lawyers which are paid for under the American rule.

The advantages outweigh the risks when looking at other options available. Negotiation and mediation are the other two options that our firm can utilize.  Negotiation is simple and non-binding. Mediation is a dynamic, structured, interactive process where a neutral third party assists disputing parties in resolving conflict using specialized communication and negotiation techniques. This form of ADR is very beneficial but both parties must be willing to make a resolution, however, disputants can argue any justification, even if there is no legal justification i.e. relationships. Mediation is non-binding, and we can spend weeks to months in mediation, only to push to formal litigation in the future. We can utilize the arbitration clause to bind parties to negotiate disputes specified and we can streamline the arbitration process and restrict litigation style techniques and practices (Sussman and Kummer, 2012, pg. 32-34).

If you are asking yourself if executory arbitration is legal, the answer is yes. Per U.S. Code, the Federal Arbitration Act (FAA or the Act) was enacted in 1925 to ensure the validity and enforcement of arbitration agreements in any transaction involving commerce. “The Supreme Court has repeatedly held that the FAA will displace state laws or judicial rules that prohibit the arbitration of a particular kind of claim (Shimabukuro and Staman, 2017, pg. 7).” Not only are these clauses legal on a national level, the state of Tennessee has determined that arbitrary clauses are legal and recommended. In the event one of our employees files a lawsuit outside of the state, the state where the contact was made will determine if the clause is legal.

There may be cases where the executory clause is not applicable and are dependent on the state and type of case proposed. We will not be able to open a branch in New York as planned if we decide to implement this change as the state prohibits all mandatory arbitration clauses from being included in contracts. Some states read the U.S. Code differently and have state laws that require the contrate be for interstate commerce to fall under the FAA jurisdiction. Recently, a rule was passed to restrict the use of arbitration clauses in agreements for select consumer financial products or long-term care disputes that involve Medicare or Medicaid, none of which this office handles. There is however a new bill in Congress, Arbitration Fairness Act of 2017 (H.R. 1374/S. 537). “This legislation would add a new chapter to the FAA and generally forbid mandatory arbitration agreements for the resolution of antitrust, civil rights, employment, or consumer disputes if an agreement was entered into before such a dispute arises (Shimabukuro and Staman, 2017, pg. 16).”

Executory arbitration is generally positively for the benefits it provides both the employee and the employer. The cost-conscious employee and the employer that does not want an expensive trial. In some cases, an arbitration decision may be held to the status of precedent for the purposes of navigating future disputes of a similar nature. Parties can again choose to agree on the arbitrator that will oversee the proceeding and the cases are faster than standard litigation. There are some hiccups in this area though. Some view these agreements as a major imbalance of power, and this alone can sway the arbitration proceedings. Others have issues with the fact that executory arbitration clauses prevent class action lawsuits from being filed, which can shield crooked business owners from the public eye and hide findings.  The finding and award details may or may not include an explanation of the reasoning for the decision.

There may be a few employees who have worked for us for a while that do not wish to sign the new clause. Other repercussions might be an employment strike. Our main goal in writing the clause is to give both parties the best possible outcome while maintaining public image and saving the company money in the long run. We can structure the arbitration clause to circumvent the pitfalls and exploit the opportunities that other companies have failed to acknowledge when drafting their clauses. We can have a team of legal advisors guide our employees through the process to ensure their best interests are considered.

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As discussed earlier in this memo, there are precedent and privacy concerns when entering arbitration. In the event of a serious accusation against our company, which would have previously resulted in a class action lawsuit, we could possibly be dealing with several arbitration proceedings. While the executory clause stripping employees’ rights to file a joint suit, it does not prevent employees from talking about case specifics outside of the arbitration, nor does it prevent any evidence from being utilized in formal litigation should a later investigation occur. The only individual required to keep confidentiality is the arbitrator themselves. There is a way to restrict the release of information, but it must be a mutually signed document before the proceedings begin.

The other key concern with arbitration is the setting of legal precedence. This can either benefit us greatly or cripple us in the future depending on the severity of the situation and suit. In some cases, an arbitration decision may be held to the status of precedent for the purposes of navigating future disputes of a similar nature. Arbitrators are experts in their fields and carry forward their history as arbitrators as well as conducting others on similar cases (George, 2002, pg. 72). Even if we encounter a suit that is new to our business, we can encounter an arbitrator that has seen this case before and he will want to establish the precedent from the similar case.

This memo has discussed the advantages and disadvantages of arbitration as compared to the standard litigation we have been forced to deal with recently. This memo also explained how executory arbitration is legal, and what cases would become issues in the future. You were also informed on the pushback we could face by implementing these clauses. Lastly, this memo covered the privacy concerns and how similar cases can set precedents for future suits good or bad.


  • George, J. (2002). The Advantages of Administered Arbitration When Going it Alone Just Won’t Do. Dispute Resolution Journal, 57(3), 66-74.
  • Shimabukuro, J., & Staman, J. (2017).  Mandatory Arbitration and the Federal Arbitration Act (CRS Report No. R44960), 1-20. Retrieved from Congressional Research Service website: https://fas.org/sgp/crs/misc/R44960.pdf
  • Sussman, E., & Kummer, V. (2012). Drafting the Arbitration Clause: A Primer on the Opportunities and the Pitfalls. Dispute Resolution Journal, 67(1), 30-38


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