Choosing Between Binding and Non-Binding Arbitration

Arbitration has become an increasingly popular alternative to traditional litigation for resolving disputes. Arbitration clauses are often part of contracts in a wide range of industries and commercial matters, including employment and contractor relationships. One key decision to make when selecting arbitration as a dispute resolution forum is whether it should be binding or non-binding.

There are pros and cons of each type of arbitration. In binding arbitration, the decision rendered by the arbitrator is final and legally enforceable. This provides a high degree of certainty, as parties involved know that they are bound by the outcome. Binding arbitration tends to be more efficient because the process itself is typically quicker and because there is no additional time spent on appeals. Knowing that the decision is binding, parties are often more motivated to reach a settlement before the arbitration process begins.

Non-binding arbitration offers greater flexibility. Since the decision isn't final, the parties can continue to negotiate or can pursue other avenues, such as litigation, if they are dissatisfied with the arbitration’s outcome. There is less risk because parties are not bound by the arbitrator's decision. Furthermore, non-binding arbitration can serve as a preliminary evaluation of the case. This can help parties better understand the strengths and weaknesses of their mutual positions, potentially leading to more informed settlement negotiations.

The following are among the factors to consider when deciding between binding and non-binding arbitration as the preferred forum:

  1. Nature of the dispute — For straightforward matters, binding arbitration may be more appropriate, while complex cases might benefit from non-binding arbitration's preliminary evaluation.
  2. Relationship between parties — If the parties wish to preserve a working relationship, non-binding arbitration might be preferable, as it allows for more flexibility.
  3. Cost and time considerations — Binding arbitration tends to be faster, but it may be more expensive. Non-binding arbitration can save costs initially but may lead to further legal proceedings.
  4. Desire for finality — If you foresee the need for a legally enforceable decision, binding arbitration is the way to go.
  5. Willingness to settle — If both parties are open to compromise, non-binding arbitration can be an effective step towards resolution.
  6. Legal requirements — Consult your jurisdiction's laws and regulations, as some disputes may be required to go through binding arbitration.
  7. Arbitrator selection — The choice between binding and non-binding can be influenced by whether the designated arbitrator has the expertise to render an informed decision.

The choice between binding and non-binding arbitration depends heavily on careful consideration of the surrounding circumstances. However, arbitration in any form can be a faster, more cost-effective and less adversarial alternative to traditional litigation, making it a valuable tool in the resolution of disputes.

Quinn & Kronlund, LLP in Stockton, California has deep experience as a provider of alternative dispute resolution, including arbitration, in a wide range of legal matters. Feel free to contact us online or call 209-943-3950 to learn more about the services we offer.