What Is Arbitration And How Does It Affect Me?

September 10, 2010

You’re in a legal dispute and can’t bear the prospect of a long, expensive court battle. What choices do you have?

Gavel | Andrew F. Scott: P6023391
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You could agree to the other party’s terms, but you would have already done that if those terms were acceptable. You could continue to negotiate, but some things are non-negotiable. You could hire a mediator, but some conflicts require more than a facilitator setting “ground rules” for the argument.

Have you considered arbitration?

Arbitration is a way to resolve disputes via a neutral third party (an arbitrator) who discusses the situation with each party, reviews the evidence, and makes a decision.

Arbitration isn’t anything new though. Read the fine print of most legal agreements, and you’re likely to find a clause that says any disputes must be resolved through arbitration.

Arbitration can be either mandatory or voluntary. In a mandatory arbitration, both parties give up their right to sue, participate in a class action lawsuit, or appeal the arbitrator’s decision.

Voluntary arbitration is not as restrictive and is usually agreed upon after both sides have exhausted other avenues of conflict resolution.

Arbitration can be either binding or non-binding. In binding arbitration, the arbitrator’s decision is final and may not be overturned by a court. In non-binding, arbitration awards may be rejected by either party.

Large agencies, such as the American Arbitration Association, provide arbitration services, as do smaller independent arbitrators. Fees are normally based on a percentage of the amount in dispute. If that amount is more than $100,000, most parties hire lawyers to guide them through the process.

That arbitration process includes:

  • Initiation of arbitration: This is usually spelled out in the arbitration clause. If unspecified, cooperation is required by both sides when choosing the arbitrator and procedure.
  • Pre-hearing conference: Meetings with both parties where the arbitrator defines how the process will proceed.
  • Arbitration hearing: Held in a less formal setting than a courtroom, each party presents their version of the conflict, along with any supporting evidence.
  • Arbitration decision: The arbitrator’s written decision, which is often based on his or her own judgment, not case law.
  • Appeal: An appeal of an arbitrator’s decision is usually only possible if bias or corruption is provable.

Arbitration is far less costly and time consuming than litigation. That’s something both parties can agree to.

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