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What are the advantages of binding and nonbinding arbitration?

On Behalf of | Jun 4, 2022 | Mediation & Arbitration

Arbitration can be an optimal solution when two disputing parties want to circumvent a trial’s cost, time and formality while preserving privacy. Disputants may prefer the independent decision of a knowledgeable person in a field over that of a judge or jury with only a general overview of the topic.

Arbitration can offer either binding or nonbinding decisions for alternative dispute resolution.

Binding decisions provide a one-and-done resolution

Binding arbitration is when both parties waive the right to a trial and wish to accept the arbitrator’s final decision. Arbitration has become a common feature of service and employment contracts to settle disputes with a few exceptions.

An aggrieved party may attempt to overturn the decision through litigation. However, courts typically must enforce the arbitrator’s decision because of the Federal Arbitration Act. A judge may be able to overrule a decision in rare circumstances, such as gross unfairness, fraud or misconduct by the arbitrator.

Binding decisions work well when both parties need a speedy resolution outside the public eye. For instance, a contractor may misunderstand payment terms and conditions on a time-sensitive job. Since the client requires timely service and the contractor desires prompt payment, binding arbitration can clear up miscommunication so the work can proceed.

Nonbinding arbitration keeps options open

As the name implies, one party may challenge a nonbinding decision later in court. Nonbinding arbitration can give a person or business insight into whether to pursue litigation by testing the strength of one’s case. If both parties accept the ruling, they may formally agree to implement the decision and end the dispute.

Arbitration can be an excellent alternative to litigation. Before rushing to settle matters at trial, entities in a conflict should consider the benefits of both types of arbitration.