Binding Arbitration for Business Disputes

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 What Is Arbitration? What Is Binding Arbitration?

Arbitration refers to a process utilized by two or more parties in order to resolve legal conflicts or disputes between them. In some cases, the disputing parties may voluntarily agree between themselves to submit to arbitration. In other cases, arbitration is mandatory. There are certain agreements, including employment agreements, which often contain language requiring that disputes be arbitrated. 

Generally speaking, arbitration is conducted by a person who is referred to as an arbitrator. This individual is a neutral third party who is tasked with listening to the parties’ claims. An arbitrator is a professional who is trained in handling such matters. The arbitrator then makes a decision regarding those claims, in the form of an arbitration award.

Binding arbitration is a specific method for resolving certain types of legal disputes. Arbitration is often used as an alternative or a supplement for a lawsuit. In the arbitration process, an arbitrator is brought in to help moderate a discussion between the conflicting parties.

Arbitration is considered to be binding if the results from the discussions can be enforced legally between the parties. An example of this would be how the parties might come to an agreement that one party will pay the other party a certain amount. This amount will be binding, similar to the way a contract is binding between the parties. Informal arbitration is sometimes referred to as “non-binding arbitration,” as it creates no legal obligations for the parties involved.

What Types of Resolutions Can Be Made During Binding Arbitration? What Are Some Business Disputes that End in Arbitration?

Binding arbitration can be a useful tool as it can assist in saving the parties a considerable amount of time, money, and energy. Some examples of issues which binding arbitration can be used to address include:

  • Disputes regarding employment contracts;
  • Business transaction conflicts, specifically debates over a contract;
  • Disputes regarding property and estates;
  • Child custody and visitation arrangements; and
  • Support payments, such as child support or spousal support.

The arbitration process can be used to settle most civil law disputes. Criminal cases usually do not result in arbitration, as the state has a duty to conduct the prosecution case according to criminal procedures.

There are some business disputes which are usually addressed by the litigation process. Some examples of reasons why this can happen may include:

  • Court litigation is too costly and/or time-consuming;
  • The disputing parties have agreed to settle disputes through arbitration;
  • The dispute is relatively minor, and as such can be settled through an out-of-court process; and/or
  • The disputing parties are willing to work together for a settlement.

Some examples of business disputes that commonly result in arbitration include:

  • Credit disputes;
  • Insurance claims;
  • Loans and banking issues; and
  • Distribution of business property.

Arbitration over these matters often involve contract matters, such as a breach of contract or a dispute over a contract term. The arbitrator may help the parties clarify the terms of the contract in order to reach a resolution.

How Does the Arbitration Process Work? How Does Arbitration Differ from Litigation?

If the disputing parties voluntarily agree to arbitration, they will select a mutually agreed upon arbitrator from an arbitration organization. One such organization would be the American Arbitration Association. This arbitration organization provides rules for how matters are to be arbitrated. It is common for the credentials of arbitrators, as well as fees, to be listed on the organization’s website. 

In some cases, the court may suggest or provide an arbitrator. However, when the parties are responsible for choosing an arbitrator, they should be sure that the arbitrator:

  • Has experience in moderating disputes in a legal setting;
  • Has credentials verifying their ability to serve as an arbitrator;
  • Is neutral and unattached from any interests in the dispute at hand; and
  • Is someone that both parties agree to work with.

Generally speaking, the type of dispute will dictate the type of arbitrator that can be chosen. An example of this would be how insurance disputes will require an arbitrator that has experience and knowledge regarding insurance claims. The same is true for small business disputes, and so forth. The arbitrator can be changed if needed, such as if the matter requires specific knowledge that they do not have.

There are several ways in which arbitration proceedings differ from litigation. As previously discussed, arbitration is a less expensive process for parties. Arbitration disputes tend to be resolved in less time than disputes that go to trial, even those in which one party is represented by an attorney. Additionally, parties in litigation must go through the process of formal discovery; this is generally relaxed in arbitration proceedings. 

This is due to the fact that arbitration proceedings generally offer a simplified discovery process, and the rules of evidence are often more relaxed than in litigation. An example of this would be in many arbitration proceedings, evidence that is not admissible in litigation may be used. This relaxation of the rules is designed to promote a faster, more efficient process for all parties involved.

What Is an Arbitration Clause? Why Do Businesses Use Arbitration Clauses?

In mandatory arbitration, the arbitration clause is what names the arbitration organization to be used. It also describes the procedure to initiate arbitration proceedings. This procedure generally consists of the party who wishes to arbitrate serving a notice to arbitrate to the other party. That party must then respond. Once they have responded, the arbitrator is chosen and the arbitration hearing is held.

More businesses are including “arbitration clauses” in their consumer user agreements and contracts. They do this as a way to quickly and quietly resolve disputes. As previously mentioned, arbitration clauses allow business to avoid the formal court system which is more expensive and time consuming.

There are several types of businesses which make use of arbitration clauses. However, such causes are especially common in the following industries:

  • Credit card;
  • Banking;
  • Insurance; and
  • Mobile phone services.

Arbitration clauses are most commonly found deep within a consumer user agreement or contract. The section will be labeled “binding arbitration”, “arbitration clause”, or “alternative dispute resolution”. If you do not have a copy of your user agreement or contract, contact the business directly and request a copy. This will be important should any issues arise.

Generally speaking, an arbitration clause will prohibit an individual from joining a class action lawsuit against a business. What this means is that if a consumer claims a loss of a few hundred dollars, they may only sue the business for that lost money. They could not join a class action lawsuit with similarly affected consumers. And, with relatively little money at stake, it is often difficult for a consumer to find an attorney who will be willing to take the case.

Recently, some parties have put together class action arbitrations. While arbitrators treat class action the same as other arbitrations, many businesses have countered this tactic by enacting arbitration clauses which restrict arbitration to individual cases. In 2011, the Supreme Court upheld the use of arbitration clauses in order to ban class actions in arbitration.

Do I Need an Attorney for Binding Arbitration for Business Disputes?

Generally speaking, a party may not appeal a lawfully rendered arbitration decision. However, there are some narrow circumstances under which an arbitration award can be appealed to a court and set aside. 

If you wish to appeal an arbitration decision, or if you are concerned about being involved in binding arbitration in general, you should consult with a skilled and knowledgeable business lawyer. An experienced and local business attorney can inform you of your legal rights and options, and can also represent you in court as needed.


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