Which costs less: Arbitration or litigation?

A case study shows that when it comes to expenditures and resolution time, litigation is cheaper and faster

In our first column, we talked about three situations in which arbitration can help eliminate some corporate litigation pitfalls. Here, we share a comparative study of 19 single-plaintiff cases—nine resolved through arbitration and 10 resoloved in court—to help you decide whether to apply arbitration broadly or on a case-by-case basis. The comparative study is the product of a company assessment into whether its arbitration program with employees lowered litigation costs and yielded better results than litigation. The big-picture takeaway is that arbitration is not a panacea to lowering litigation costs. The study, in a nutshell, shows that arbitration costs rival those of litigation. Customization of the process is key, rather than a one-size-fits-all approach. The study is, of course, not a tell-all; the devil is in the details. An analysis of the outlier arbitration cases that increased costs can help you craft arbitration provisions to help avoid those extremes. Let’s look at the case study’s results and the reasons behind them. We’ll then wrap up with a discussion on how to best use the results.    

The numbers game:  Outside counsel fees, arbitration costs and number of months to resolution

Making sense of the results

The primary reason for this longer time and increased expense is that litigation cases, unlike arbitration, may often be disposed of through dispositive motion practice or directed verdicts after the presentation of one side’s case. Because arbitrators are loath to use this power for risk of being reversed (not to mention losing their job), they tend to err on the side of caution, and frequently deny motions to dismiss and for summary judgment. Of the cases in the study, three of the 10 court cases were resolved through dispositive motion practice, correlating with some of the lower lifecycles and costs.  

Contributing Author

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Alan Dabdoub

Alan Dabdoub represents corporate clients in business litigation, including business torts, class actions and employment disputes.  He has first chaired several trials and arbitrations in...

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Contributing Author

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Trey Cox

Trey Cox has been helping clients resolve complex business disputes for nearly 20 years, representing Fortune 500 corporations, entrepreneurs and leading firms in a wide...

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