Conflicts are a part of life. However, when conflicts are legal and often sensitive in nature, arbitration is a tool that becomes available to resolve them. The process of arbitration is very similar to a trial in that the legal representatives of both parties make opening statements and present evidence in an effort to “win” their parties’ lawsuits. One key difference is that, unlike a court trial, arbitration is private. At the end of each private arbitration, the arbitrator(s) will issue a final decision, like a verdict, that may be binding or non-binding. But what does that mean? What is the difference between binding and non-binding arbitration?
What Is Non-Binding Arbitration?
In non-binding arbitration, the arbitrator(s) will make a determination of the rights of the parties to the dispute, but this determination is not final or legally binding upon them. In other words, no court-enforceable arbitration award is issued. When arbitration is non-binding, the arbitrator’s award is advisory and can be final only if accepted by the parties.
Why would the court order a non-binding arbitration? There are several benefits, including non-binding arbitration’s ability to help both parties:
- Acquire direction or guidelines to follow.
- Avoid issues in any future transactions or dealings.
- Maintain a positive and healthy working relationship.
- Protect their public reputations by preventing open legal conflict and/or bad press.
- Discover the weaknesses and strengths in their cases before they go to trial.
- Reach a mutually agreeable settlement eventually.
Non-binding arbitration is commonly employed in simple conflicts where both parties only need guidance. For example, two owners of the same restaurant may be arguing over a small amount of cash. Thus, a non-binding arbitration may be a practical way to resolve the conflict rather than go to trial. Sometimes the communication between the two parties has deteriorated so severely that a third party is needed to provide a suitable answer and also help to salvage the relationship.
In many minor business conflicts, non-binding arbitration is effective, as it assists both parties to formulate realistic and practical goals. It also helps create a more sociable environment. In fact, in Florida, it is legally mandated to submit small business disputes to arbitration before going to trial.
However, there is one important caveat in Florida. If a party rejects the non-binding arbitration award, and the party’s attorney does not beat or come within 25% or 75% of that amount at trial, the party may have to pay the other side’s attorney fees.
For example, if a plaintiff gets a $100,000.00 non-binding award, goes to trial, and gets $74,999.99 or less, they might have to pay the defendant’s attorney fees. Conversely, if the defendant rejects the same $100,000.00 award, and if the plaintiff gets $125,000.01 or more at trial, the defendant might have to pay the plaintiff’s attorney fees.
What Is Binding Arbitration?
In binding arbitration, the arbitrator(s) will make a determination of the rights of the parties to the dispute. This determination is final and legally binding upon them, so a court-enforceable arbitration award is issued. In simpler terms, both parties have waived the right to a trial and will agree to accept the arbitrator(s)’ decision as final. Only in very narrow circumstances, such as fraud, can the decision be appealed. Even if appealed, the court usually respects the arbitrator(s)’ final judgment and very rarely changes it.
In general, binding arbitration is referred to simply as arbitration. This arbitration is practical for settling business conflicts where a quick outcome is necessary. For example, a builder has agreed to perform renovations on an office complex for a corporation but has misread the contract terms and the form of payment. In such a case, it is in the interest of both parties to get the building renovated so that it can open for business and so that the contractor gets paid. So, in this case, binding arbitration is ideal for both parties because completion of the work is invaluable to both parties. The key factors to resolve in the arbitration process are the contract terms and payment method.
If you have questions related to arbitration – whether binding or non-binding, please do not hesitate to contact Breakthrough Mediation. Our knowledgeable team has more than 150 years of combined legal experience and is well versed in helping attorneys resolve their clients’ cases outside of a trial.