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Arbitration Benefits

Arbitration Benefits

Introduction

Arbitration is a form of alternative dispute resolution that avoids litigation by involving one or several impartial individuals to impose a (usually) legally binding settlement.  This process typically occurs as a contractually mandated obligation to settle disputes between the signing parties.  Unlike mediation, the arbitrator does not attempt to help the parties reach a settlement, but rather remains impartial and unobtrusive until the decision is made.  The only role of the arbitrator is to determine where and if wrongdoing occur and determine appropriate redress for the injured party.

What are the benefits of arbitration?

Arbitration is beneficial as a means to avoid litigation, which can be lengthy and expensive for both parties.  It allows an informed third party to deliver the ruling, rather than a legal system that may be uninformed about the nature of contents of the dispute.  Litigation also binds the parties to relevant laws and statues in the jurisdiction the case proceeds in, whereas the two parties can agree upon the language and framework of the arbitration.  Lastly, arbitration is non-public and can be confidential to suit the needs of both parties and prevent private details about the disagreement becoming public knowledge.  

However, there are some disadvantages to arbitration.  Arbitration may become expensive with will lead smaller parties to seek a quicker resolution, before the costs of paying the arbitrators becomes crippling.  By agreeing to arbitration, the parties generally surrender their right to seek redress in court and instead must abide by the binding arbitration agreement.  The Federal Arbitration Act determined this, as the government supported resolving some disagreements without burdening the legal system.  

There is a chance that arbitration clauses may bind the injured party to a biased arbitrator that will support the party that offered the contract.  Some jurisdictions bar this practice and require arbitration to take place in front of a neutral third party.  To prevent ambiguity, there are several standards by which arbitration clauses may be written so that the number of arbitrators, legal language, location and governing law is clear to the weaker party.

How do I file for arbitration?

Firstly, one must determine if the situation merits arbitration or is eligible for arbitration.  Many agreements will include an arbitration clause although some agreements to arbitrate may happen after the dispute has occurred.  This agreement is called a “submission agreement.”  The parties will the enter arbitration as determined in either the clause or the submission agreement.  Arbitration will vary widely depending on the prior agreement, although it must always include a non-based third party that determines the settlement.  Non-binding arbitration for example, advises both parties on the merits of their position and makes a recommendation based on the merits of the party’s claims.  One of the more famous forms of arbitration is salary or “baseball” arbitration where the arbiter makes an absolute judgment on the merits of either’s side position, in this case, salary, and determines if the employer or the employee is entitled to his determination of an acceptable salary.

Source: http://www.sec.gov/answers/arbproc.htm

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