How Binding and Mandatory Is Arbitration?

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The phrase “mandatory binding arbitration” sounds very final, but what does it really mean? How binding is an arbitration proceeding? Can one appeal an improper ruling? Can one avoid arbitration all together?

Arbitration is a form of alternative dispute resolution designed to reduce the cost and enhance the speed of resolution of legal disputes. Unlike a trial, arbitration dispenses with many of the formal requirements of notice and discovery, and often uses relaxed rules of evidence. Rather than judges and juries, the matter is usually heard by one to three arbitrators. The arbitrators are often paid for by the parties to the dispute and, because they do not have long dockets of cases like judges do, matters are usually much more quickly scheduled.

Arbitration is usually agreed upon before a dispute arises in a contract between the parties. In other instances, it is mandated by state of federal law for disputes relating to certain legal matters. There are various forms of arbitration, but they often include ominous sounding names like “mandatory binding arbitration.” This leads many to wonder what this truly means.

The mandatory part means that a matter must be arbitrated rather than taken to court. Although the parties can usually waive this agreement through mutual assent, if either party refuses to do so the matter must be submitted to arbitration and a trial court will dismiss any lawsuit that is filed outside of the arbitration process.

The binding part means that the parties agree to be bound by the decision of the arbitrator(s). Effectively, the ruling of the arbitrator(s) becomes like a new contract by which the parties agree to conduct themselves. If they fail to do so, the non-breaching party may file an action in a court of law to enforce the arbitration decision. It is possible to have non-binding arbitration. Practically, the two are virtually the same, except that in non-binding arbitration, the trial court is permitted to look beyond the terms of the arbitration decision and make its own determinations rather than simply enforcing the ruling of the arbitrator(s). Of course, given the body of evidence immediately available to the court in these situations, many proceedings regarding non-binding arbitration decisions can feel like little more than rubber stamping the decision by the court.

In both binding and non-binding arbitration, however, decisions can be contested in court. Grounds exist under the Federal Arbitration Act and applicable state laws to challenge virtually any arbitration decision. In some instances, arbitration decisions may call for the appointment of a special appellate arbitration panel. However, even these “second level” arbitration decisions can be brought up for review by a court of law, if necessary.

If you are preparing to take part in arbitration, you should probably seek the assistance of an experienced, qualified attorney. Even though faster and cheaper, arbitration can be just as complicated as any trial, and you will probably need the assistance of an attorney to navigate these treacherous waters and obtain the best possible result from the process.


Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer.

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