SHOULD I MEDIATE OR ARBITRATE?

The decision to either mediate or arbitrate is a question I am asked frequently. To help a person understand the difference I use a very simple image: Imagine a person who listens to your dispute, tells you what to do, and then says there is no talking back. In other words, the arbitrator is somewhat like a parent.

In most instances the arbitrator is a neutral third party who has some experience in the general area of the dispute. They listen to testimony and review evidence.  Generally speaking the rules of evidence are less stringent than in a court adjudication because the arbitrator renders the decision.

Most of us are parties to many contracts that specify that disputes are to be resolved through arbitration. That ranges from agreements with banks, real estate agreements, telecom companies, medical specialists and others. Overall, there is little or no appeal of these decisions. The advantage of arbitration is that it is much faster and much less expensive than court adjudication and is usually confidential.

After a suit has been filed, the court may offer parties the option of using arbitration before a trial. In these cases of judicial arbitration, generally speaking if the parties do not accept the arbitrators ruling, then the dispute goes to trial as if the arbitration had not occurred.

Recently contracts requiring arbitration have been in the news. For example, JPMorgan Chase notified more than 40 million credit card holders that they will have to use arbitration to resolve any disputes with the bank forgoing the option of filing a lawsuit or joining class-action suits. And Uber is using arbitration now with its millions of drivers for the same reasons. A recent study at Stanford University’s Graduate School of Business analyzed some 9,000 arbitration cases involving financial institutions. They found that the companies routinely used arbitrators that tended to be industry-friendly. Even if the arbitrator comes from a neutral organization, the businesses has a better idea of an arbitrator’s background and past awards. They found that arbitrators who in the past favored a specific industry were 40% more likely to be chosen by those companies than arbitrators who had been more sympathetic to consumers. They also determined that if the arbitrators had been chosen at random, the average monetary award to consumers would have been $50,000 higher.

Remember that there can be little, if any, appeal to an arbitrator’s decision. So the outcome is determined by the arbitrator alone. To be a credible system, the arbitrator must be neutral. Selecting an arbitrator who has a leaning one way or another corrupts the process.

There are, of course, many neutral, professional arbitrators. And there is a difference between forced arbitration, as was the case with Chase, and voluntary arbitratio..  Nonetheless, I favor and advocate for facilitative mediation in what the disputing parties maintain the power to resolve their dispute themselves.

By the way, if you are a Chase cardholder, the company does permit you to opt out of arbitration. You have to do so in writing within 60 days of receiving the bank’s notice.