Non Binding Arbitration: Key Insights for Dispute Resolution

Key Takeaways

• Non-binding arbitration allows parties to resolve disputes without being forced to accept the arbitrator's decision.
• It is frequently used by courts to encourage settlement and relieve court dockets.
• Non-binding arbitration can provide an early evaluation of the case’s strengths and weaknesses.
• Some states mandate non-binding arbitration before litigation proceeds.
• Non-binding arbitration promotes faster, cost-effective dispute resolution while preserving relationships.

A non-binding arbitration clause is a provision in a contract for arbitration. This provision states that any issues with the contract must be carried out through arbitration, but the non-binding aspect means that the parties are not bound to the decision of the arbitrator once the process is complete.

What Is an Arbitration Clause?

Arbitration refers to a type of ADR (alternative dispute resolution). Many courts encourage individuals and companies to handle disputes through arbitration because it is less time-consuming and less expensive than full court trials with formal litigation. An arbitration clause is found in a contract. It means that both parties agree to carry out any dispute resolution through arbitration.

Many agreements commonly include arbitration clauses. You'll likely find then in:

• Employment contracts
• Securities trading contracts
• Credit card contracts
• Home repair contracts
• Health insurance contracts
• Telephone service contracts
• Sales and financing contracts

What Is an Arbitrator?

An arbitrator is like a judge in the courtroom. They are a third party who is meant to make an impartial decision regarding the dispute after conducting the arbitration process with the parties involved. They will listen each side of the argument and evaluate the evidence. Their final decision is called the award.

Binding Arbitration Clause Versus Non-Binding Arbitration

When two parties agree to binding arbitration, they waive their rights to court trials and they agree to be bound to the decision of the arbitrator. This is ideal in business conflicts between employees and companies when a decision needs to be reached quickly.

For example, if a construction company agrees to work for a retail company by building them a new storefront, they need to be able to handle issues quickly. If there is a misunderstanding about the form of payment agreed upon in the contract, the retailer is going to want to settle the issue quickly so they can open their store. The construction company also wants to get paid, so they'll benefit from arbitration as well.

Most agreements for binding arbitration do not allow either party to appeal the arbitrator's decision. In some cases, an award can be challenged if either of the parties involved can prove that fraud or public policy infringement has taken place. In order to uphold and validate the arbitration process, courts value the expertise and fair judgment of the arbitrator. Again, it's in the best interest of the court system to show that arbitration is a valuable alternative dispute resolution.

Sometimes arbitration is non-binding. If both parties agree to a non-binding arbitration clause, they agree to pursue conflict resolution through arbitration, but they are not bound to the decision of the arbitrator. The award decided isn't enforceable and can be challenged. If either party is displeased with the arbitrator's decision, they have the right to pursue a full court trial.

Why Use a Non-Binding Arbitration Clause?

There are many reasons to choose a non-binding arbitration clause over a binding arbitration clause. Even though non-binding arbitration might not provide a final settlement or fully resolve the dispute, it can help the parties involved learn about better conflict resolution. Arbitration tends to be healthier for working relationships. Sometimes, full court trials can get ugly, so arbitration is more likely to preserve a positive work environment or relationship.

Arbitration can also bring out the strengths and weaknesses of the arguments on either side of the issue. If the parties involved decide to reject the arbitrator's decision and take the issue to court, they may have a better understanding of how to strengthen their argument before the trial.

Many times, parties will choose non-binding arbitration for an issue that is not very complex or when they simply need some professional guidance and input on the issue. Anytime an issue between two parties is causing their communication practices to deteriorate, getting an unbiased third party involved can work wonders. They could be able about to not only come to a mutual agreement, but also save their relationship.

Cases involving child custody disputes are usually carried out through non-binding arbitration. The goal is usually to help both individuals involved to work on creating realistic goals and building a safe and welcoming environment for the child or children involved.

Certain states actually require non-binding arbitration in some disputes. The state of Florida, for instance, legally requires both sides in a business dispute to submit their issue to arbitration before taking it to court. This is with the hopes that the parties involved with each gain a more thorough understanding of the problem.

How Non-Binding Arbitration Works

Non-binding arbitration follows a relatively straightforward process. Both parties present their case to an impartial arbitrator, who reviews the evidence, listens to arguments, and ultimately issues a decision, often called an "award." However, unlike binding arbitration, this award does not carry legal enforceability unless both parties accept it voluntarily.

Typically, non-binding arbitration involves:

• A preliminary meeting where procedural rules are set.
• Presentation of opening statements and evidence by both sides.
• Questioning and cross-examination (if permitted).
• A decision issued by the arbitrator.
• An opportunity for either party to accept, reject, or negotiate based on the decision.

Non-binding arbitration can serve as a valuable "dress rehearsal" for litigation, providing insights into how a case might fare in court​​.

Benefits of Non-Binding Arbitration

Using non-binding arbitration offers several advantages:

• Flexibility: Parties retain the right to proceed to litigation if unsatisfied with the outcome.
• Cost Savings: Arbitration is typically less expensive than a full trial.
• Time Efficiency: Disputes are often resolved faster compared to court proceedings.
• Confidentiality: Proceedings are private, helping preserve reputations and relationships.
• Better Settlement Prospects: Early evaluations of cases often encourage out-of-court settlements.

Additionally, because non-binding arbitration does not foreclose litigation, it provides a safe opportunity to explore resolution options without relinquishing legal rights​​.

When Is Non-Binding Arbitration Required?

In some jurisdictions, courts may order non-binding arbitration as part of pretrial proceedings. For example:

• In Florida, certain business disputes must go through non-binding arbitration before they proceed to trial.
• Other jurisdictions may require it for small claims or specific civil matters, aiming to relieve congested court dockets​.

Court-ordered non-binding arbitration is intended to foster quicker settlements and reduce the burden on the judicial system. Even when arbitration is mandated, parties typically retain the option to reject the award and pursue a trial if necessary.

Key Differences Between Non-Binding Arbitration and Mediation

While both non-binding arbitration and mediation are forms of alternative dispute resolution, they differ significantly:

• Decision Authority: In non-binding arbitration, the arbitrator issues a decision based on evidence and arguments. In mediation, the mediator facilitates negotiation but does not render a decision.
• Formality: Arbitration tends to follow a more structured, trial-like process. Mediation is more informal and conversational.
• Outcome Control: In mediation, the parties control the outcome entirely. In non-binding arbitration, an award is proposed but not binding unless accepted.

Understanding these differences can help parties choose the dispute resolution method that best suits their needs​​​.

Frequently Asked Questions

1. What happens if I reject a non-binding arbitration award?
   If you reject the award, you can proceed to court litigation. The arbitration decision has no binding effect unless both parties agree to accept it.
2. Is non-binding arbitration confidential?
   Yes, most non-binding arbitration proceedings are private, helping protect sensitive information and preserve business or personal relationships.
3. Does non-binding arbitration cost less than going to court?
   Generally, yes. It is typically faster and less expensive than formal court litigation, though costs can vary depending on the complexity of the case.
4. Can I have legal representation during non-binding arbitration?
   Absolutely. Parties are allowed—and often encouraged—to have legal counsel represent them during the arbitration process.
5. How does non-binding arbitration affect ongoing court cases?
   If ordered by the court, non-binding arbitration can temporarily pause court proceedings, but litigation resumes if the parties do not settle afterward.

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