Arbitration vs. Litigation: Understanding the Key Differences

The quest for peaceful resolution and prevention of escalated disputes is paramount in any business relationship. When it comes to settling conflicts arising from commercial contracts, there are two primary options: arbitration or litigation. If you find yourself faced with the arbitration vs. litigation dilemma with your small business clients, let’s explore the key disparities to help them make an informed decision.

Arbitration: A Swift and Cost-Effective Solution

In essence, arbitration refers to the resolution of disputes between two business entities outside of a courtroom, facilitated by an impartial third party known as the arbitrator. While arbitration may lack the glamour of a televised courtroom drama, its efficiency, affordability, and enforceable decisions often make it the preferred choice for small business clients.

Arbitration clauses are typically included in commercial contracts, stipulating that in case of a conflict, the parties will opt for arbitration to resolve their issues. These clauses can be straightforward, with both parties agreeing to settle disputes in front of an arbitrator and abide by their rules. More comprehensive clauses may include customized regulations defining the timeframe, types of damages, limits on discovery, and appellate rights. The American Arbitration Association offers sample clauses that you can tailor to your clients’ contracts.

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Speed: Swift Resolution to Disputes

Once the decision to pursue arbitration is made, the process moves swiftly. This expeditiousness is one of the most significant advantages of arbitration over litigation. The dispute is filed with an arbitration body, and the parties collaboratively select an arbitrator to oversee the proceedings. While there is a possibility of a summary judgment, a hearing is usually conducted.

Compared to litigation, arbitration boasts an impressive speed to resolution. On average, an arbitration case takes approximately seven months, whereas litigation can drag on for 23 to 30 months, depending on the court’s schedule, according to research conducted by the American Bar Association.

Costs: A Welcome Relief for Small Businesses

Small businesses are consistently seeking cost-saving opportunities. When it comes to weighing arbitration against litigation, costs strongly favor arbitration. Limited discovery, absence of pre-trial depositions, reduced documentation authentication requirements, and diminished reliance on expert qualifications make arbitration a less financially burdensome option. Your expertise and knowledge of the arbitration process can set you apart from competitors, positioning you at the forefront when clients face disputes.

Convenience and Cooperation: Simplifying the Process

The absence of a courtroom and a judge in arbitration makes the process simpler and more convenient for the involved parties. Arbitration hearings are conducted in private locations, eliminating the need to navigate court calendars. Moreover, jurisdictional concerns play a lesser role in arbitration, easing logistical complications. In many cases, an arbitrator is assigned, often from a mutually agreed upon arbitration group.

As arbitration typically involves business associates, fostering a cooperative atmosphere is essential. The parties are encouraged to actively participate in the resolution process and may even assist in shaping the final decision. Unlike litigation, this approach cultivates a more amicable agreement, minimizing hostility and distress. For business partners aiming to maintain a continued working relationship, the intricate nature of litigation can strain future collaborations.

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Privacy: Safeguarding Trade Secrets

One clear benefit of arbitration is its inherent privacy. Arbitration hearings remain shielded from the public eye, with no court records filed. As a result, small business clients can protect their trade secrets and other intellectual property, which may form the foundation of their enterprises. The presence of third parties, including the press or competitors, is strictly forbidden during arbitration proceedings. However, it is important to note that while privacy is a component of arbitration, confidentiality is not guaranteed. The assurance of confidentiality depends on the laws governing the jurisdiction of arbitration and the rules outlined in the respective business contracts.

Binding Decisions: Finality and Closure

An arbitrator’s decision is generally enforceable in any U.S. court. While a binding decision facilitates progress for both parties, it also means limited recourse for dissatisfied clients. Barring any demonstration of bias or fraud on the part of the arbitrator, the decision is typically considered final.

Litigation: When Court Becomes the Last Resort

Given the numerous advantages of arbitration, one may wonder why parties still opt for litigation. When arbitration is not an option due to unwillingness or absence of an arbitration clause in the contract, litigation becomes the solution. Litigation is a time-honored resolution method, involving a courtroom, a judge, and potentially a jury. Although it can be contentious, invasive, and expensive, litigation offers an effective path to resolving disputes.

Appeal: Seeking Redress in Higher Courts

The primary comparative advantage of litigation lies in the possibility of challenging a decision through an appellate review. In arbitration, decisions are generally binding, leaving parties with limited recourse to contest a judgment. Litigation, on the other hand, provides multiple levels of appeal. While this can provide reassurance, the costs associated with pursuing appeals may prove prohibitive.

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It is crucial to note that most litigation cases are resolved through settlements before going to trial. As the saying goes, “a bad settlement is better than a good lawsuit.” Since the outcome of litigation cannot be guaranteed, settling a case often represents the most efficient and pragmatic path to dispute resolution.

Arbitration vs. Litigation: Striving for Thoughtful Resolutions

In the arbitration vs. litigation debate, neither option presents a particularly enjoyable experience. After all, it is the presence of a conflict that prompts parties to seek a formal resolution. However, finding no means to settle a disagreement is an even worse scenario. Your clients deserve the most considerate and effective approach to resolving their business disputes, and you can provide them with invaluable insights to navigate this process.

Speed to Resolution:

  • Arbitration: Months, commencing upon arbitrator selection.
  • Litigation: Years, contingent upon discovery and court schedules.


  • Arbitration: Comparatively moderate, encompassing location fees, arbitrator fees, and attorneys’ fees.
  • Litigation: Expensive, involving court costs and extensive attorneys’ fees.


  • Arbitration: Confidential discussions limited to the parties involved.
  • Litigation: Public courtroom proceedings.


  • Arbitration: Generally fosters cooperation.
  • Litigation: Prone to antagonism.


  • Arbitration: Decisions are binding.
  • Litigation: Open to multiple levels of appellate review.

To learn more about various methods of dispute resolution, refer to the insightful article, “Problems & Benefits of Using Alternative Dispute Resolution” by Thomson Reuters.

Remember, when it comes to effective dispute resolution, Garrity Traina is your trusted partner. Visit Garrity Traina for more information.