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Binding Arbitration for Business Disputes

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What Is Binding Arbitration?

Binding arbitration is a method for resolving certain types of legal disputes. Arbitration is often used as an alternative or a supplement for a lawsuit. In arbitration, a neutral, third-party arbitrator is brought in to help moderate a discussion between the conflicting parties. The arbitrator is a professional who is trained in handling such matters.

Arbitration is considered "binding" if the results from the discussions can be enforced legally between the parties. For instance, the parties might reach 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 called "non-binding arbitration" and creates no legal obligations for the parties.

What Are Some Business Disputes that End in Arbitration?

Some business disputes often end in arbitration. This can happen from many reasons, including:

  • Litigation is too costly or time-consuming
  • The parties have agreed to settle disputes through a arbitration
  • The dispute is relatively minor and can be settled through an out-of-court process
  • The parties are willing to work together for a settlement

Some business disputes that commonly result in arbitration include:

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

Arbitration over these matters often has to do with a contract matters, such as a breach of contract or a dispute over a contract term. The arbitrator may help the parties clarify the terms and reach a resolution.

What’s an Arbitration Clause?

Some business contracts include an arbitration clause. This is a section of the contract stating that the parties will only settle legal disputes through arbitration. Arbitration clauses need to be approached with caution, as the parties will basically sign away their right to a lawsuit by signing the arbitration clause.

Do I Need a Lawyer?

Even though arbitration happens out of court, it’s still good idea to hire a business lawyer for help with any arbitration matters. Your attorney can provide you with advice, guidance, and representation during the entire process. Binding arbitration often involves much negotiation and discussion, and your lawyer can ensure that your rights and interest are protected.

Photo of page author Jose Rivera

, LegalMatch Legal Writer

Last Modified: 05-06-2018 05:18 PM PDT

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