Weighing Arbitration? Know the Downsides Before You Sign

The short answer: arbitration trades court rules for a private process

The main downsides of arbitration are narrower evidence gathering, very limited grounds to challenge the result, cost and arbitrator-selection issues, and less published reasoning. Arbitration sends a dispute to a private decision-maker, often one the parties choose, instead of a judge and jury.

If you are asking what is the downside of arbitration, you may be reading a contract you signed months ago. You may also be holding a demand letter that just arrived. Either way, the tradeoff needs to be clear before you respond.

Florida law generally enforces these agreements. Fla. Stat. § 682.02 says an agreement in a record to arbitrate is valid, enforceable and irrevocable. The exception is a ground that exists to revoke any contract. That is why the drawbacks matter. Once the clause applies, the process you get is the process the clause describes.

Limited discovery can leave a business with less evidence

Arbitration usually allows less document exchange and fewer depositions than a court case. That can make it harder to test the other side’s version of events.

Consider a contract dispute over late payment. The proof often sits in emails, change orders, payment logs and internal messages.

Arbitration can move a dispute outside that framework. The scope of document exchange comes from the arbitration agreement and the rules the parties choose. So the wording of the clause matters a great deal. A business may end up without the records it needs to test the other side’s story.

Read the clause before a dispute starts. Ask what documents each side must share, whether depositions are allowed, and who decides disagreements about discovery.

Narrow grounds to appeal an arbitration award

A disagreement with the arbitrator’s reasoning is not one of the narrow grounds for review. Fla. Stat. § 682.13 names the grounds. They include an award procured by corruption, fraud or other undue means. They also include evident partiality by a neutral arbitrator, and an arbitrator who exceeded the arbitrator’s powers.

Timing matters. A motion to vacate generally must be filed within 90 days after the movant receives notice of the award. For fraud-based claims, the 90 days run from when the ground is known or would have been known with reasonable care.

Changing an award is narrower still. Under Fla. Stat. § 682.14, a court can fix an evident miscalculation of figures, an award on a matter not submitted, or an award that is imperfect as a matter of form. Those fixes do not reach the merits.

In practice, a party that thinks the arbitrator got the facts or the law wrong usually has no full second review. The result often stands unless it fits a listed ground.

Arbitration costs can be significant

Arbitration can cost more than a business expects, especially when the amount in dispute is modest. The costs usually fall into a few categories:

• Arbitrator compensation, often billed by the hour or by the day
• Administrative fees charged by the arbitration provider named in the clause
• Hearing room and recording charges
• Attorney time for briefs, discovery disputes and the hearing itself

Subcontractor claims and smaller contract disputes feel this most. Arbitration fees can take up a large share of a claim worth a similar amount.

The clause may say who pays these costs, and that allocation changes the math. The total depends on the facts of the case, the provider’s rules and how long the proceeding runs. Compare the full expected cost against the amount in dispute before you decide.

Arbitrator selection and less predictable outcomes

The parties often pick the arbitrator, or pick a panel from a list. That choice shapes the process more than many businesses expect. An arbitrator with a background in construction, finance or sales may view a dispute differently than a generalist judge would.

Arbitrators are not judges. Their decisions do not build the same body of published court rulings that a business can study. That makes outcomes harder to predict.

A business comparing arbitration with a court filing should count that uncertainty as a real cost. Weigh it alongside the cost of fees and the limits on review.

Limited written reasoning and little public precedent

Many arbitration awards state the result with little explanation. A business that receives a short award has less to learn from it. It may not know which argument worked and which one failed.

Confidentiality adds to the problem. Many arbitration agreements include confidentiality terms. The outcome may never become public record, so other businesses cannot learn from it.

Confidentiality helps some parties. A company that wants a dispute kept out of public view may value that privacy. A company that needs a public ruling to defend itself against future claims may not. Decide which matters more before you sign the clause or respond to a demand.

Multi-party disputes and third parties can be hard to bring in

A party that never signed an arbitration clause is often hard to bring into the proceeding. A subcontractor, supplier, lender or co-owner may not be bound by a clause it never agreed to. Without its own agreement, that party may not be included.

Construction projects show the problem clearly. A property owner, a general contractor and several subcontractors may each hold different contracts with different dispute terms. The claims can split into separate proceedings. Those proceedings can reach inconsistent results on the same facts.

Whether related claims can be combined depends on the clause and the rules that apply. Review those terms before you assume one proceeding will cover everyone. Construction claims carry their own filing deadlines under Fla. Stat. § 95.11, so lien and contract claims may need to be reviewed together.

Mandatory arbitration clauses in everyday business agreements

Arbitration clauses appear in many routine business contracts. Construction agreements, shareholder and partnership agreements, distribution contracts and international sales agreements often include them. A business can sign one without fully weighing what it gives up.

Signing a clause can mean giving up a court trial on covered disputes. Florida courts generally enforce these clauses. Under Fla. Stat. § 682.03, a court may not refuse to order arbitration because the claim lacks merit. Federal law also lets a party aggrieved by another’s refusal to arbitrate under a written agreement ask a federal district court that would otherwise have jurisdiction over the dispute to order arbitration under 9 U.S.C. § 4.

Enforcement is not automatic in every case. In Basulto v. Hialeah Automotive, the Florida Supreme Court concluded that both the procedural and substantive aspects of unconscionability must be present, although not necessarily to the same degree, and that both should be evaluated interdependently rather than as independent elements (Basulto opinion). They need not be present to the same degree, and a court weighs them together. The Revised Florida Arbitration Code governs an agreement to arbitrate made on or after July 1, 2013, and beginning July 1, 2016, every agreement to arbitrate is subject to it under Fla. Stat. § 682.013.

Where the downsides matter most in Florida business disputes

The drawbacks matter most in a few common settings. A business should look closest at the clause in these situations:

• Contract disputes over payment or performance, where the proof lives in records
• Construction disputes, including lien-related claims under Chapter 713
• Shareholder and partnership disputes, where not every owner may have signed the same agreement
• Real estate matters involving several parties and recorded documents
• International trade disputes, where the clause may control where and how the dispute is heard

Some businesses in Hillsborough County work with contractors, suppliers and buyers across state or national lines. That mix can make it harder to know which clause covers which claim.

Before a dispute starts, map which claims the clause covers and which it leaves out. Once a demand arrives, write down the dates and the documents you already have.

Talk with Ayala Law PA about your clause or demand

Arbitration is a tradeoff, not a default. The right move depends on your contract, your dispute and the records you already have.

Common questions