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10 Frequently Asked Questions about Arbitration

Arbitration can be a useful tool for resolving many types of employment and business disputes. This article is intended to provide some basic general information about arbitration. However, in order to obtain the full benefit of arbitration and avoid its pitfalls, you should consult an attorney who is knowledgeable about your type of legal problem and arbitration. This article is not intended as, nor is it a substitute for, advice from a lawyer.

What is arbitration?

Arbitration is a substitute for a trial in a state or federal court. Instead of having a judge or jury decide your case, a neutral arbitrator makes the decision. Arbitrators make their decision after conducting a hearing. An arbitration hearing is similar to a trial. Each party will call witnesses who will be questioned under oath by each side. During the hearing, each side is also allowed to introduce into evidence documents and other forms of proof. The arbitrator will issue a decision, called an award, after considering all of the evidence and the arguments made by the parties.

Do I have to arbitrate my dispute?

You have to arbitrate your dispute only if you have signed a binding arbitration agreement, which can be either part of a contract or a separate contract. Many types of commercial contracts have arbitration clauses; for example, you will frequently find arbitration clauses in contracts with architects and home builders. Many employers also have arbitration agreements in their employee handbooks. However, in New Jersey an arbitration agreement will be binding on the employee only if it is signed by the employee and clearly informs employees that they are losing their right to a jury trial.

What are the qualifications of arbitrators?

Although many arbitrators are lawyers or retired judges because of their expertise in the law, other professionals, such as engineers, architects and business people, can also serve as arbitrators. The two most important qualifications for arbitrators are that they are experts in the type of dispute involved and are trustworthy.

Unlike lawyers or doctors, arbitrators are not licensed or regulated by the government. Anyone can call themselves arbitrators. Therefore, you should be very careful when selecting an arbitrator and get as much information about them as you can.

Where can I find a qualified arbitrator?

The best way to ensure that you are selecting a qualified person to arbitrate your dispute is to use one of the nationally recognized arbitration organizations. These organizations carefully screen the people listed on their roster of arbitrators to make sure they are knowledgeable and trustworthy. In New Jersey, the two best known arbitration associations are the American Arbitration Association [www.adr.org] and JAMS [www.jamsadr.com]. There are many other organizations as well which maintain a roster of qualified arbitrators.

Do I need a lawyer to represent me in an arbitration?

You do not need a lawyer to represent you in an arbitration. However, you should consult a lawyer before representing yourself if your case is complicated or if there is a lot of money involved. Also, if the other side has a lawyer, you should try to have a lawyer represent you.

How much does arbitration cost?

There are three types of costs related to arbitration: filing fees, administrative fees and arbitrators’ fees. First, the provider, such as the American Arbitration Association (“AAA”), requires the party demanding arbitration to pay a filing fee. In commercial cases, the amount of the filing fee of the AAA depends upon the amount of damages claimed. For example, if the damages claimed are between $10,000 and $75,000, the amount of the initial filing fee is $975; if the claimed damages are between $300,000 and $500,000 the initial filing fee is $4,350. At the conclusion of the arbitration, the AAA charges an additional “final fee,” again based on the amount of money at issue.

For employment disputes, the AAA has a different fee structure for filing fees. The employee’s filing fee will be no greater than $175. The employer’s filing fee is either $925 if there is a single arbitrator or $1,800 when there is a three-arbitrator panel.

Second, the AAA charges administrative fees. These fees will depend upon the complexity of the case and the number of days for the hearings. For more complex cases, these fees could be several thousand dollars. Employees with discrimination or whistleblower claims, however, are not required to pay these fees.

Third, the arbitrators charge fees for the work they perform in connection with the arbitration. This fee will cover the arbitrator’s time spent in studying the papers submitted by the parties, attending the hearing and writing the award. Each arbitrator has a different fee structure. The AAA tells you what the arbitrator’s rates are before you make your selection.

Who selects the arbitrators?

The parties jointly choose the arbitrator. The AAA follows the following procedure for selecting arbitrators. After the demand for arbitration is filed, the AAA case manager will send each party information about five to 10 potential arbitrators. This information will include a description of their work experience, educational background, their training as an arbitrator and their fee structure. After reviewing this information, each party eliminates those arbitrators they definitely do not want and rank the remaining candidates in order of preference. The AAA, using a formula to determine the most acceptable candidate, then appoints the arbitrator from that list.

How can I be sure the arbitrator is impartial?

All arbitrators are required to make extensive disclosures that will allow the parties to determine whether the arbitrator has a conflict of interest. The first set of disclosures is found in the initial information the AAA provides you about the arbitrator. After an arbitrator is selected, the AAA gives the arbitrator a list of the parties, witnesses and attorneys. The arbitrator takes this list and performs a conflict check to see if there have been any contacts between the arbitrator and any of the parties, witnesses or lawyers. If the arbitrator has had prior contacts with any of these people, the arbitrator must disclose those prior contacts to you. You can then decide whether these prior contacts might impair the arbitrator’s impartiality. If you believe the arbitrator’s impartiality is threatened, you may object to the arbitrator and ask for a different arbitrator.

How many arbitrators will hear my case?

The arbitration agreement will determine the number of arbitrators. The most common number of arbitrators is either 3 or 1. Only one arbitrator will be used in many employment disputes. In business disputes, usually three arbitrators are used.

Can I appeal the arbitrator’s decision if I think it is wrong?

It is very difficult to reverse or vacate an arbitration award. Under the Federal Arbitration Act [9 U.S.C.A. §10], a court may vacate an arbitrator’s decision only if:

  • The award was procured by corruption, fraud or undue means
  • There was evident partiality or corruption in the arbitrator
  • The arbitrator was guilty of misconduct in refusing to postpone the hearing or to receive evidence, or engaged in other conduct which materially prejudiced a party
  • The arbitrators exceeded their powers or so imperfectly executed them that a mutual, final and definite award was not made