Types of Arbitration
Arbitration may be binding or nonbinding. In binding arbitration, the arbitrator’s decision is final. It has the legal effect of a court issued judgment. It is not however subject to the normal appeal route that can be taken in a court of law. The opportunity to set aside an arbitrator’s award is much more restricted, such as when actual fraud on the part of the arbitrator is involved. In nonbinding arbitration, either party may reject the arbitration award and demand a court trial instead. Parties often treat nonbinding decisions as an independent assessment of the strengths and weaknesses of a potential lawsuit, with the aim of fostering settlement. Often in such cases, the arbitration agreement will provide that the decision becomes binding if the parties wait past a specific time period to formally reject the award.
Arbitration may even be a hybrid whereby one of the parties agrees in advance to be bound by the arbitrator’s award, whereas the other party may have a stated period of time within which to accept or reject the arbitrator’s decision. This often occurs where one party has a much stronger bargaining position and even agrees to be financially responsible for the entire costs of the arbitration while retaining the right to select the arbitrator. The necessary impartiality of the process is assured by the non-bound party having the full opportunity to assess the fairness of the proceedings before electing to accept the arbitrator’s decision.