What is the cost of Arbitration?

Average costs of typical mediation and arbitration cases...

Costs of Arbitration vs. Court, Fees and Who Pays For Arbitration

A good arbitration definition is the resolution of a dispute by a third-party that acts as fact finder and decides questions of law. Corporations see the arbitration agreement in contracts as a method of preventing potentially costly class action suits Businesses hope to lower the occurrence of frivolous lawsuits and force customers and employees to agree to settle any disputes in a venue more amenable to the business owner. Yet a survey by two lawyers at Inside Counsel, the online periodical, suggests that arbitration is not the most economic way for businesses to settle disputes when compared to litigation. The survey found that arbitration ended up costing businesses more money because the cases tended to last much longer than litigation. The benefit to the business then, according to Public Citizen, is that the cost to the plaintiff is also higher, especially to get started. That’s likely to cause individuals forced into arbitration by a contract to think twice before moving forward.

This survey will look at the average costs of arbitration in the United States.

The average cost of arbitration in most jurisdictions

Arbitration fees are most often predetermined in most jurisdictions. Organizations such as the American Arbitration Association sets fees for pre-dispute arbitration, such as those in binding arbitration clauses in a service contract. The fee schedules are often confusing because the charges are different based on the type of claim one pursues, and different based on the amount of the claim. For post-dispute arbitration, fees are less.

For example, in a claim of up to $75,000, the initial filing fee for AAA marshalled claims costs $750 to file. This is the initial administrative fee. There is a “final fee” for all cases that proceed to their first hearing. The fee is not in fact “final” because there may be a fee increase of the amount of the claim increases or if counterclaims appear.

The cost of arbitration in the law: explained for civil lawsuits and litigation.

The cost of arbitration in the law: explained for civil lawsuits and litigation.


The arbitrator’s fees: How much are they?

Arbitrators fees vary based on skills and experience as with any legal professional. There is a surprisingly national consensus on fees the arbitrators charge. Some arbitrators offer “low-cost” fees for cases where one or both parties have demonstrated a financial need. These arbitrators accept as little as $150 per hour, but few arbitration organizations offer a low-cost option. At the far end of the spectrum, retired judges at high-end law firms may not make their rates public, but have been known to ask $750 per hour or more.

What are additional fees involved with arbitration?

There are additional costs to consider when entering into an arbitration proceeding. In litigation, most of these costs are buried in filing fees and court costs; however, in the arbitration hearing, the fees have to be paid in advance. You need a physical venue in which to have the hearing, you will need the equivalent of a court reporter, you may need to compel witnesses to appear as with a subpoena. All these items add on costs.

It may be necessary to have more than one arbitrator. In certain cases it will be necessary to convene a tribunal to arbitrate the case. The arbitration association will charge more, and the parties will have to pay three arbitrators instead of one.

Parties split the costs of arbitration, but one side usually pays…

With most mandatory arbitration agreements, the parties share the costs of arbitration. Usually, one party is in a position of financial advantage to another, as with employer-employee arbitrations. The full cost of the arbitration, even though it is shared, may be too daunting for the employee in such situations to move forward. If an arbitration is to go forward under AAA, the filing fee and final fee will be $1550. A hypothetical arbitrator of reasonable reputation may cost $350 per hour, and he or she may put in 20 hours of work on the case before it is resolved. A room rental fee may be $600. There is an administrative fee of $250. The employer may be able to handle the accumulation of fees. The employee may struggle to find the money and may not press the claim.

Costs of arbitration Vs. litigation

Looking at the survey from Inside Counsel, the lawyers observed costs to outside counsel, the arbitration fees and the time to reach a resolution. They compared the total costs to similar circumstances adjudicated in court. The arbitrated cases cost over $100,000 per case. The litigated matters cost approximately $80,000 per case. Arbitration saved neither money nor time as the arbitrated cases lasted two months longer on average. The length of the arbitration is a significant factor in the difference in cost between the two methods of dispute resolution.

Some define arbitration as the faster, cheaper method of resolving disputes because it avoids litigation. However, the average costs of arbitration may be too high for others.

If you're searching for an arbitrator to help you with your lawsuits, cases, and business matters, Settle the Dispute Group can help you find the top arbitrators.  We are experts on the American Arbitration Association and arbitration issues.  

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