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What is arbitration?


Arbitration is a formal way to solve legal problems, although it is less formal than a full court trial.  It may be part of a lawsuit, where a court requires the parties to arbitrate rather than take up court time. It may come about because people agreed in a contract to arbitrate disputes rather than litigate them (take them to court).

Labor union contracts, business and construction contracts, and consumer contracts often contain a requirement that the people who signed the contract must solve disputes by arbitration.


How does arbitration work?


If the parties to a contract can’t agree on a term or an interpretation of a term in their contract, they must follow the rules in the contract about selecting an arbitrator--or sometimes a panel of arbitrators. When they have selected the arbitrator or the panel, the arbitrator meets with the parties to set a schedule for providing important documents to him or her, decide about some legal procedural matters, and then hold a hearing or hearings. In this way the arbitration process is very similar to preparing for and having a trial in a court. Depending on the terms of the contract, the arbitrator’s decision may be legally binding. If it is not legally binding, the parties can still take their case to a court.


In some situations, including some cases already filed in court, the parties may be forced to arbitrate their problem either before or instead of using the court itself. In these cases, the law can make it very difficult to appeal a decision made by an arbitrator.


Is it possible to avoid arbitration and try to solve a dispute some other way?


Always read a contract proposal to find out if it requires arbitration. You can try to change the terms of the contract to eliminate the arbitration requirement or to allow mediation before or instead of arbitration. If the contract is for personal, family, or household goods or services, you may not have to arbitrate even if the contract says you do. It’s important to get legal advice before signing a contract that may take away your right to a court hearing.


Why do people arbitrate instead of going to court?


The reasons vary. The arbitration process usually happens much more quickly than a court case, where a judge must attend to many cases. For business disputes, people usually will find an arbitrator with a good understanding of the business. It is not often possible to do this in court, where many judges do not have the same kind of background. People may then have to bring in sometimes expensive expert witnesses. Because arbitration does not allow for juries, court costs can be lower. Finally, the outcome of an arbitration does not become a public record. No one outside the arbitration knows who won the case or why.


In recent years, many companies that sell or rent goods and services to consumers using contracts began to require arbitration of consumer disputes and complaints. A consumer contract is an agreement to purchase something or borrow money for family, personal, or household use. It applies to things like furniture purchases or rentals, cell-phone and internet services, leases and purchases of a personal home, agreements with doctors or hospitals to pay medical bills, etc.


The move to arbitration in consumer cases worked in favor of the companies:

  • the general public would not know if the company lost the dispute in arbitration
  • arbitration requirements meant that it would be harder for consumers to file class action cases against companies
  • the cost of arbitration for the companies was low compared to the cost to the consumer to pay for his or her share of the arbitration. Unlike court, arbitration does not have to allow someone without money to use the system
  • consumers give up their right to a jury trial
  • grounds to appeal from a decision of an arbitrator were very limited.


Despite these problems, the U.S. Supreme Court has decided that arbitration clauses in consumer contracts are enforceable.


Do consumers in New Mexico have to agree to arbitrate complaints about consumer goods and services?


The New Mexico Supreme Court recently ruled that arbitration cannot be forced on the consumer in a contract for consumer goods or services in this state.


How do I prepare to arbitrate my dispute?


Like courts, arbitration deals with legal issues. Therefore, it is very important to get legal advice. You may want to find out if your case can go directly to court or if mediation can help you. For more information about mediation, see the related LawHelpNewMexico topic, “Mediation.” Learn about your right to appeal, and get a sense of how strong your case is.


It is very important to follow the deadlines in arbitration cases. You are allowed to have an attorney with you before and during arbitration.


Reviewed 12/2010