Binding Arbitration is a method of resolving disputes outside of the court system, where an impartial third party, known as the arbitrator, makes a decision that is legally binding on both parties involved. This process is often stipulated in contracts as a means of dispute resolution, whereby the parties agree in advance to abide by the arbitrator’s ruling.
In Binding Arbitration, the parties present their cases, including evidence and arguments, to the arbitrator. The procedure is generally less formal than court proceedings, but it is structured to ensure fairness. The arbitrator then evaluates the information and delivers a decision, known as an "award." Unlike mediation, where a mediator facilitates negotiation between the parties, the arbitrator has the authority to make a binding decision.
Once the award is issued, it is enforceable in a court of law, with limited grounds for appeal. This means that the parties cannot later contest the decision in another court, making Binding Arbitration a final resolution to the dispute. Common areas where Binding Arbitration may be applicable include commercial contracts, employment agreements, and consumer disputes.
For example, if two businesses enter into a contract that includes a Binding Arbitration clause and later have a disagreement regarding the terms of that contract, they would present their case to an arbitrator. The arbitrator’s decision would be final, and both businesses would be legally obligated to adhere to that decision, which may include financial compensation or specific performance as directed by the arbitrator.
« Back to Glossary Index