What Is Binding Arbitration? - Definition & Example

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  • 0:01 Binding Arbitration
  • 0:35 Arbitration Process
  • 1:35 Binding Arbitration & Courts
  • 1:57 Example
  • 3:16 Lesson Summary
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Lesson Transcript
Instructor: Shawn Grimsley

Shawn has a masters of public administration, JD, and a BA in political science.

Arbitration is a popular form of alternative dispute resolution. In this lesson, you will learn what binding arbitration is, some of its general principles, and be provided an example.

Binding Arbitration

Binding arbitration is important to know because it is a common form of alternative dispute resolution used by both businesses and individuals in lieu of litigation. It is often cheaper and quicker than filing a lawsuit.

Binding arbitration is a means of resolving a dispute outside of a courtroom in which the decision is binding upon the disputing parties. In other words, except under very limited circumstances, decisions made in binding arbitration by the arbitrator - including awards of damages - must be honored and cannot be appealed to a court of law.

Arbitration Process

The rules governing binding arbitration are usually found in the parties' arbitration agreement. The arbitration should outline how an arbitrator is selected, what specific procedural rules will apply in the arbitration, and the laws of which state will apply to the dispute. Once an arbitrator is selected, the disputing parties are given an opportunity to engage in some discovery, which is a formal method of investigation that can involve disclosure of documents and taking witness statements. A hearing will be held after the discovery, which is conducted by the arbitrator, who is much like a private judge.

At or before the hearing, the parties may submit a statement of the case that outlines their view of the facts and arguments in support of their respective positions. The arbitrator will typically give the parties a chance to present opening statements, present evidence and testimony of witnesses, and conclude with a final argument. Sometime after the hearing, the arbitrator will issue a decision, which may include an award of money damages.

Binding Arbitration & the Courts

The enforcement of binding arbitration decisions is supported by The Federal Arbitration Act, which prevents courts from reviewing most arbitration decisions or even hearing cases that are supposed to be arbitrated pursuant to an arbitration agreement. However, a court can enforce an arbitration agreement and arbitration decisions if a party seeks court assistance.

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