arbitrationThe next time you are thinking about a low cost alternative to litigation, make sure you’ve researched ALL of your options.

Arbitration has long been touted as the most cost-effective way to settle claims and disputes. A study by Public Citizen has recently suggested otherwise:

The cost charged by the tribunal that will decide the dispute can be up to five thousand percent higher in arbitration than in court litigation.

There is no price competition among competitors and this may explain why arbitration costs are high under a pre-dispute arbitration clause. Some companies use arbitration costs as a barrier to prevent consumers and others from asserting their legal rights.

While it costs the Circuit Court of Cook County an average of $44.20 to administer a case, the same case would average $340.63 if administered by the American Association of Arbitrators, about 700% more.

There are significant up-front fees. A seven-figure construction claim could easily cost the claimant forty or fifty thousand dollars in administrative fees before the case is ever heard. This DOES NOT include attorney fees or costs, it is simply the “arbitration fee” you pay to get your case heard.

Some arbitration organizations saddle claimants with a plethora of extra fees that they would not be charged if they went to court, for instance, the National Arbitration Forum charges $75 to issue a subpoena. You still have to pay to have the subpoena drawn up (attorney fees), served (costs) and a return of service noted (costs). The point is, for 10 witnesses, this is an extra $750.

Taking a case to arbitration does not guarantee that you will stay out of court, increasing costs even more. In fact, even if you win a case in arbitration, if the defendant refuses to honor the award, you must ask a judge to enforce it. That means filing a lawsuit – the very thing you were trying to avoid.

Arbitration organizations are under no obligation to respond to or ensure that complaints about the process are handled. No actual enforcement powers exist, so if you are facing a “bad actor” who does not want to play the game, you can be at a significant disadvantage. In a court setting, you have a judge who can force compliance on even the most stubborn party. In the vast majority of cases, arbitration will necessarily increase the transaction costs of litigation.