Asked by Amanda Maciorowski on Jun 08, 2024
Verified
Define arbitration. What is the difference between binding and nonbinding arbitration? What role do arbitration clauses play in the arbitration process?
Binding Arbitration
A dispute resolution process where an arbitrator's decision is final and legally enforceable, limiting parties' ability to seek court intervention.
Nonbinding Arbitration
An arbitration process in which the arbitrator's decision is not legally enforceable unless both parties agree to it.
Arbitration Clauses
Legal provisions enabling decision-making for disputes outside of courts, usually by an impartial third party.
- Understand the concept of arbitration, including the differences between binding and nonbinding arbitration.
Verified Answer
(other than a court), who renders a decision that may or may not be legally binding.
In nonbinding arbitration, the parties submit their dispute to a third party but remain free to reject the third party's decision. Nonbinding arbitration is more similar to mediation than to binding arbitration. If after a nonbinding arbitration award is given the parties are dissatisfied with the results, they may ignore the arbitrator's decision and have the dispute litigated in court. In binding arbitration cases, a party can usually appeal the decision to a court for judicial review.
Frequently, disputes are handled through arbitration because of an arbitration clause in a contract entered into between the parties. An arbitration clause provides that any dispute arising under the contract will be resolved by arbitration. Also, most states have statutes under which arbitration clauses are enforced, and some state statutes compel arbitration of certain types of disputes, such as those involving public employees. There is also a federal statute, the Federal Arbitration Act of
1925, which enforces arbitration clauses in contracts relating to certain types of activities, such as those involving interstate commerce.
Learning Objectives
- Understand the concept of arbitration, including the differences between binding and nonbinding arbitration.
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