Before the Federal Arbitration Act (FAA) was adopted in 1925, courts often refused to enforce arbitration agreements, viewing them as improper attempts to bypass judicial authority. The FAA changed that. Arbitration agreements became enforceable, allowing parties who agreed in advance to resolve disputes privately to rely on courts to honor that choice.
Yet long before modern statutes, procedural rules, and arbitration institutions existed, businesspeople were resolving disputes outside the courts in a simpler way: they chose someone they trusted and asked that person to decide. No formal rules. No institution. No clause required. Just two parties, a disagreement, and a neutral they could both agree on.
That history matters because it captures arbitration at its most practical. Strip away the rules and procedure, arbitration is simply choosing a decision-maker you trust to resolve a dispute on a timeline that makes sense for your business.
Fast forward to today, and most arbitrations begin with a clause drafted months or years before any dispute arises. When a dispute later erupts, arbitration happens because the contract requires it. Arbitration can also be agreed upon post-dispute, but that path is less common. In those cases, the parties have no contractual obligation to arbitrate but voluntarily agree to do so after the dispute has already begun.
Several factors contribute to the rarity of post-dispute arbitration agreements:
- Not everyone is comfortable with arbitration. Some lawyers worry about limited appellate review, unfamiliar procedures, or giving up the structure of court litigation. Those concerns are understandable. Arbitration is not perfect, nor is it appropriate for every dispute. But skepticism alone does not explain why it is so rarely discussed once litigation begins.
- Arbitration requires mutual consent. If one party believes it has an advantage in court through procedural leverage, discovery pressure, or delay, it may have little incentive to agree to arbitrate. That may be rational, but it can also be shortsighted.
- Most often, no one asks. A dispute arises, counsel is retained, pleadings are drafted, and litigation begins. Arbitration never enters the conversation, not because it was considered and rejected, but because it was never considered at all.
Why Business Clients Should Consider Arbitration, Even Without a Clause
Many commercial disputes create urgent practical problems that litigation is not always well-designed to solve. When lawyers and their clients pause to consider arbitration, several advantages may emerge.
- Speed: Businesses often need resolution more than prolonged process. Arbitration can move faster than litigation, with hearings scheduled around the parties and arbitrator, streamlined discovery, limited motion practice, and finality in months rather than years.
- Expertise: In litigation, judges may not be familiar with the industry or issues at hand. Arbitration, by contrast, offers neutrals with relevant subject-matter expertise, reducing the need for background education and keeping the focus on the issues that matter.
- Right-sized discovery: Arbitration discovery can be tailored to the needs of the case. Legitimate discovery is usually permitted, while excess that drives up time and cost can be reduced.
- Privacy: Court proceedings are public by default. Arbitration is not. Financial information, personal information, internal disputes, and proprietary data can remain within the arbitration process rather than becoming part of a public court file.
- Finality: Although limited appellate review concerns some lawyers, many commercial disputes benefit from a focused decision by a neutral, or panel of neutrals, with relevant expertise. For parties seeking closure, finality can be a feature, not a flaw.
How Post-Dispute Arbitration Happens
When parties agree to arbitrate after a dispute arises, they can proceed through organizations such as the American Arbitration Association, which provide procedural rules, case management, and an established framework to guide the process. Alternatively, the parties may agree on an arbitrator and design the process themselves.
Post-dispute arbitration is not appropriate for every case. But certain circumstances make it especially attractive, including:
- disputes involving time-sensitive business decisions;
- cases that would benefit from specialized industry expertise;
- situations where privacy is important;
- disputes where litigation costs may be excessive; and
- matters where the parties want a decision, not a war of attrition.
When these factors align, arbitration deserves serious consideration, even after litigation has begun. All it takes is an attorney wise and confident enough to ask the question: “How do you feel about arbitration?”
Rob Harris is a full-time arbitrator and mediator of commercial and employment disputes, often involving business entities and their owners, senior employees, investors, and service providers. He is a member of the National Academy of Distinguished Neutrals and a longstanding panelist for the American Arbitration Association, including service on its Commercial, Employment, Construction, and Consumer panels, as well as its specialty panels for Large Complex Cases, Mergers and Acquisitions, and Joint Ventures.