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Is arbitration always binding?

On Behalf of | Sep 18, 2023 | Mediation & Arbitration

Arbitration is a growing field. The U.S. Bureau of Labor Statistics expected a 5% job growth of arbitrators from 2022 to 2032, which is faster than average.

With more people utilizing this option instead of going through litigation in court, it is helpful to learn more about it. Many people believe that arbitration always results in a binding decision, but this is not entirely accurate. There are some circumstances under which arbitration may or may not be binding.

Binding arbitration

Binding arbitration is the more common form. The parties involved agree to submit their dispute to a neutral third party or arbitrator. The arbitrator then conducts a hearing, considers evidence and arguments presented by both sides and issues a legally enforceable decision. Once the arbitrator renders a decision, it obligates the parties to abide by it, and a court can enforce the decision if necessary.

Non-binding arbitration

On the other hand, non-binding arbitration is a process where the arbitrator’s decision is advisory rather than legally binding. The parties can choose to accept or reject the arbitrator’s decision. If either party is unhappy with the outcome, they can proceed to pursue their claims in court.

Arbitration may not be binding in several scenarios. The parties involved in a dispute can agree in advance that their arbitration will be non-binding, or the law may mandate non-binding arbitration.

In some cases, parties opt for a two-step dispute resolution process known as med-arb. First, they attempt mediation to reach a voluntary settlement. If mediation fails, the same neutral third party becomes an arbitrator and renders a binding decision.

It is essential to understand the nature of the arbitration process and the terms before proceeding. Whether arbitration is binding or non-binding can significantly impact the resolution of a dispute. Parties may choose non-binding arbitration when they desire more flexibility or wish to retain the option to pursue litigation. Conversely, parties wanting a quicker and private resolution may choose binding arbitration.