What is Arbitration?

by Team eLocal
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You may have heard of arbitration if you're looking for an alternative way to resolve a legal problem, or it may be something you've agreed to in a contract.

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Learn more about what arbitration means for a legal dispute.

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What Is Arbitration?

Arbitration is a form of alternative dispute resolution (ADR). Instead of litigating an issue before a traditional court, parties agree to have a private arbitrator decide the case. The arbitrator acts as a judge and issues a ruling on the case. Parties can use arbitration to resolve almost any kind of noncriminal legal issue.

Why Do Parties Choose Arbitration?

The arbitration process is typically much quicker than traditional litigation, and parties may be able to get a decision about their case months or even years earlier. Arbitration tends to be cheaper for parties due to less strict procedural requirements and a faster outcome.

Parties also have more control over procedures, evidence and other arbitration rules. Sometimes the issue in a case may require particular expertise to understand fully, and an arbitrator with relevant background or education may be desired.

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Are There Different Types of Arbitration?

Arbitration can be binding or nonbinding. In most cases, arbitration agreements between parties are binding, and the arbitrator's decision is final. Parties give up their right to litigate the case in the court system when they agree to arbitration. The Federal Arbitration Act recognizes the validity of arbitration agreements, and courts will enforce a binding arbitration outcome.

However, some arbitration agreements are nonbinding. In these cases, the parties reserve the right to litigate the case in court if certain conditions are met.

Contract or Submission

Many arbitration agreements are formed as part of a contract before a dispute ever arises. For example, two companies might enter into a contract to do business. One of their contract terms might require that all disputes go to arbitration.

Contract clauses requiring arbitration are sometimes controversial due to a power disparity between the parties. Landlords, employers and businesses often include arbitration agreements in their contracts. The other parties to these contracts don't usually get to negotiate terms and may not realize they've agreed to arbitration.

In other cases, parties submit to arbitration after a dispute has arisen. Submission to arbitration happens in many types of cases. Parties to a divorce or personal injury case might agree to arbitration to obtain a quick decision or increase privacy.

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How Is Arbitration Different From Mediation?

Arbitration usually replaces a court trial, and parties get a final ruling on their case from the arbitrator. The arbitrator's decision about the case is usually binding, just like a ruling from a judge.

Mediation, however, helps parties reach a settlement agreement. Mediators listen to each side, facilitate conversations between parties and help parties find common ground. However, mediators don't make decisions about the case. Sometimes parties are required to attend mediation by a contract or court order. However, the matter may proceed to trial if the parties can't settle.

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