Arbitration is a type of dispute resolution involving a third party who will mediate between the disputing parties. This takes place outside of court and is sometimes not connected with the court at all. An arbitration agreement can mean two things:
- A clause in a contract stating that the parties will resolve any legal disputes by arbitration rather than a lawsuit, OR
- The final conclusion and ruling from the arbitration sessions themselves
In most cases, the first meaning of the term is what is being referred to. It is sometimes called an "arbitration clause," as it is usually included as a part of a contract.
This depends, there are two basic forms of arbitration: non-binding arbitration and binding arbitration. Non-binding arbitration means that the agreement reached may not be enforceable under law. The arbitration efforts in this case are often very informal and may not serve an actual "goal" in the legal sense of the term. For instance, the parties may just need to air out certain issues and need a third-party arbitrator to intervene.
Binding arbitration is, however enforceable under law. This is where the arbitration is somewhat more formal and may involve procedures that are closer to a trial, such as oath swearing, formalized recording of depositions, and a the use of a court-sponsored mediator. In some cases, binding arbitration is also "mandatory arbitration", meaning that the parties must attend the sessions or else face consequences.
Courts will generally indicate whether an arbitration meeting will lead to legally enforceable agreements or not. Also, any contracts or written agreements written during a binding arbitration may become enforceable under law, so long as the document meets the requirements for a valid contract.
Again, informal, non-enforceable arbitration agreements may often serve as mere guidelines for other more formal decisions. Violations of these may not lead to legal penalties. However, violations of binding arbitration agreements can lead to legal penalties, including a contempt order, an injunction, or monetary damages in some cases. Also, the violation may lead to a full-blown lawsuit if the violation is severe enough.
In many cases, it’s advisable to hire a business lawyer if you have any legal issues or questions. This is especially true if you may be up for an arbitration hearing. You may wish to hire a lawyer for help with the arbitration meeting. Your attorney can guide you through the process and can inform you of any laws that might affect your rights and interests. Also, your lawyer can represent you during a lawsuit if you need to file one in the long run.