Arbitration refers to a legal process in which parties resolve legal conflicts or disputes that have come between them. Arbitration is a private resolution alternative to going to court, or proceeding with litigation. In some cases, the parties may voluntarily agree between themselves to submit to arbitration. In other cases, arbitration is mandatory. There are certain agreements, such as employment agreements, which contain language requiring that all disputes are to be arbitrated.
Generally speaking, the arbitration process is conducted by an individual known as an arbitrator. This individual is a neutral third party responsible for listening to the parties’ claims and then making a decision as to those claims, in the form of an arbitration award.
It is important to note that certain disputes cannot be arbitrated, due to the fact that state or federal law requires litigation of some matters. An example of this would be how disputes over whether a crime was submitted must be addressed through the court system. However, most disputes between private parties can be arbitrated. The most common examples of disputes that can be arbitrated include contract disputes as well as commercial disputes, which are disputes between businesses.
Alternatively, there are certain disputes that must be submitted to arbitration. This would be due to the fact that the agreement the parties entered into may mandate the use of arbitration. An example of this would be a contract or an employment agreement. The terms of mandatory arbitration are detailed through a provision in the agreement. This provision is referred to as a mandatory arbitration clause. The mandatory arbitration clause typically requires that a party seeking to resolve a dispute first try to resolve it through arbitration.
How Does the Arbitration Process Work? Does an Arbitrator Have to Be a Lawyer?
If the disputing parties voluntarily agree to arbitration, they will generally select a mutually-agreed-upon arbitrator from an arbitration organization. One such organization would be the American Arbitration Association. The arbitration organization provides rules for how matters are to be arbitrated, as well as the credentials of arbitrators and fees.
In circumstances requiring mandatory arbitration, the arbitration clause generally specifies the arbitration organization that is to be used. It also describes the procedure to be used to initiate arbitration proceedings. Such a procedure generally consists of the party who wishes to arbitrate serving a notice to arbitrate to the other party, who then responds. Once that exchange happens, the arbitrator is chosen and the arbitration hearing is then held.
Generally speaking, anyone can act as an arbitrator; they do not need to be a lawyer. However, many retired or former judges do act as arbitrators, as the only general requirement is that both disputing parties agree to who will serve as arbitrator. In many fields, the arbitrators chosen are experts in the business or field of law involved. Some arbitration clauses may specify qualifications of potential arbitrators. An example of this would be how reinsurance arbitration clauses generally require that any arbitrators be selected from among current or former officers of insurance companies.
One arbitrator is typically sufficient to hear a case, although sometimes an arbitration agreement will provide for three or more. However, it is important to note that there must always be an odd number of neutral, third-party arbitrators so that a decision can be made by a majority.
How Does Arbitration Differ From Litigation?
Arbitration proceedings differ from litigation in a number of ways. In general, arbitration is a less expensive process for the disputing parties. Arbitration disputes tend to be resolved more rapidly than those disputes that go to trial, even those in which one party may be represented by a lawyer. Additionally, the process of formal discovery is generally relaxed in arbitration proceedings. All parties involved in litigation must go through the process of formal discovery.
Another way in which arbitration differs from litigation is that the rules of evidence in arbitration proceedings are often generally more relaxed than in litigation. An example of this would be how in many arbitration proceedings, evidence that is not admissible in litigation may be used. That evidence may be inadmissible due to the fact that it is inadmissible hearsay. The relaxation of the rules is designed to promote a faster, more efficient process.
Arbitration is just one of the most common examples of alternative dispute resolution (“ADR”) Some other examples of alternative dispute resolution include, but are not limited to:
- Mediation: Although arbitration and mediation are similar, one of the main differences is that a mediator, or impartial third party, cannot force the parties to agree. Additionally, they are not allowed to decide the outcome of the dispute. The mediator works with the parties to come to a solution that is made mutually, and the agreements are generally non-binding. Courts can mandate that mediation be required, but the process itself is still voluntary. This allows the parties to refuse to come to an agreement while in mediation, the parties maintain significant control over the process. Mediation is completely confidential and, as it is non-binding, parties retain the right to pursue litigation following the mediation process;
- Med-Arb: This is a form of ADR in which the arbiter starts as a mediator; however, should the mediation fail, the arbiter will impose a binding decision. Med-arb is a mixture of mediation and arbitration that pulls from the benefits of the two forms of ADR; and
- Mini Trial: A mini trial is not so much a trial, as it is a settlement process. Each party presents their highly summarized case. At the end of the mini trial, the representatives attempt to settle the issue. If they cannot, an impartial advisor may act as a mediator, or declare a non-binding opinion regarding the likely outcome of the issue going to trial. Mini trial is a unique ADR method, as it often comes after formal litigation, as opposed to before.
What Is an Arbitration Award?
Once the arbitration hearing has concluded, the arbitrator will consider the evidence that each side has submitted. After evaluating said evidence, the arbitrator will issue a decision referred to as an arbitration award. In this award, the arbitrator indicates what each party is entitled to.
It is common that the arbitrator will find in favor of just one party, and the award will provide only that party with relief. However, in some circumstances, the arbitrator will find that both parties’ claims have merit. In such cases, the arbitrator will render an award that grants each party some measure of relief.
An arbitration award generally consists of money that one party must pay to the other. It may also be a non financial award, such as stopping a specific business practice or adding employee incentives. Arbitration awards are not the same as jury awards. This is because a jury award is given in a civil trial, proceeding a regular civil trial. Alternatively, an arbitration award is granted by an arbitrator outside of court.
Can I Appeal an Arbitration Award?
In general, no. A party may not appeal a lawfully rendered arbitration decision. However, there are some narrow circumstances in which an arbitration award may be appealed to a court. An arbitration award may be appealed and set aside when:
- The arbitrator did not have the jurisdiction to render the award;
- The dispute in question is not covered by a valid arbitration agreement;
- The arbitration process was tainted by fraud; and/or,
- The arbitrator engaged in misconduct which then affected their decision.
Do I Need a Lawyer to Help with Arbitration Issues?
If you are facing arbitration, you may wish to consult with a lawyer who can help with arbitration. An experienced and local attorney can review the facts and circumstances of your case, and provide advice as to how you should prepare for the arbitration process. Additionally, an attorney will answer any questions you may have, and can also represent you at the arbitration hearing.