Arbitration is a type of dispute resolution process. The arbitration process takes place outside of a court of law. An arbitration can be organized independently by the parties to it or with the support of an organization such as the American Arbitration Association (AAA).
Basically, the process is quite straightforward: the parties choose a person to serve as the arbitrator, the person who makes the decision as to who wins and who loses the arbitration. Or they might choose a small panel of people to serve as the decision-maker.
Arbitrators do not have to be lawyers or judges. The parties might choose an expert who knows the field in which the parties work. Or they may just choose a person or panel of people whom they believe can be impartial and give everyone involved a fair hearing.
Arbitration hearings are similar to trials but are less formal. The parties present evidence to the arbitrator and make their arguments. The arbitrator reviews the evidence, considers the arguments, and makes a decision. A decision in an arbitration is also referred to as an arbitration award. The decision is not a public record, as are decisions in court proceedings.
Usually, an arbitration decision is binding on the parties. However, there is binding arbitration and non-binding arbitration. Decisions in binding arbitrations should be enforceable, whereas non-binding arbitration results in decisions that are not enforceable.
What Is an Arbitration Agreement?
An arbitration agreement is a provision in a contract that states that the parties to the contract agree to resolve legal disputes between them through arbitration rather than a lawsuit in a court of law. This type of clause in a contract is sometimes called an “arbitration clause,” as it is usually included as a part of a larger contract. Today, many such provisions are mandatory according to the contract that contains them.
A common question is whether a court will enforce an arbitration clause. Of great importance in cases involving arbitration agreements is the Federal Arbitration Act. The U.S. Supreme Court has routinely held that the FAA overrules state laws that limit the enforceability of mandatory arbitration agreements. Both state and federal courts should enforce mandatory arbitration agreements when the circumstances otherwise indicate that the agreement is one that is enforceable.
However, the FAA applies only in cases of contracts that involve transactions across state lines or transactions that deal with maritime law. If the FAA does not apply, the law of the state in which the arbitration is held controls whether a court would enforce a mandatory arbitration clause.
State laws regarding enforcement of arbitration clauses are very different in different states. The state of New York prohibits mandatory arbitration clauses in consumer contracts. California law allows parties to an agreement to cancel an arbitration clause if the contract is not valid or if the parties to it agree to remove the arbitration clause from the contract.
Arbitration clauses and mandatory arbitration clauses have become increasingly controversial in recent years as many people and courts consider them unfair. Whether a court, state or federal, enforces an arbitration clause in a contract can become a complex question. The answer may depend in part on what kind of contract contains the clause and whether enforcement is sought in federal or state court.
When Will a Court Enforce an Arbitration Decision?
Another important question in arbitrations is whether a court will enforce an arbitration decision. First of all, many parties are willing to voluntarily follow an arbitrator’s decision. However, it is true that the arbitrator and the parties themselves do not have the authority to make a party comply with an arbitrator’s award even if the arbitration is a binding one. The AAA also does not have the authority to enforce arbitration awards in arbitrations done under its auspices.
A party might win a mandatory arbitration award, and the losing party might not do what the award directs. If that is the case, the winning party may go to court to “confirm” the arbitration award. AAA rules allow the parties to an AAA case to agree that an arbitration award can be entered as a judgment in any federal or state court with jurisdiction of the case.
The parties might also agree in their arbitration agreement that any award in an arbitration would be enforceable by a court of law. Once it is entered as a judgment, the court can enforce it in the same manner as any other judgment.
Each state sets its own rules and laws for how to make a party do what they are directed to do in an arbitration award. Also, of course, whether an award is enforceable depends in part on whether the arbitration is binding or non-binding. Non-binding arbitration means that the decision reached is not enforceable under law. Also, after the arbitration, if one of the parties decides to pursue a lawsuit in a court of law, they may do so.
The arbitration efforts in a non-binding arbitration are often informal and may not serve an actual goal in the legal sense of the term. For instance, the parties may just need to air a grievance and get the input of a neutral third-party arbitrator regarding the issues involved in a dispute.
A binding arbitration may involve a process that is more formal and may be more like what happens in a trial in a court of law. For example, a person who testifies may take an oath to tell the truth. Depositions may be recorded formally as evidence.
The mediator or arbitrator may be court-sponsored. In some cases, binding arbitration may be “mandatory arbitration.” This means that the parties are required to attend and participate or face consequences for failing to do so. In addition, the parties must respect the arbitration award, and they may not turn to a lawsuit in a court of law to resolve their dispute.
What if an Arbitration Agreement Is Violated?
An arbitration agreement is a provision in a contract, and for that reason, it is enforceable just as any contract provision. A party to the contract may go to court to enforce the provision if the other party refuses to participate in an arbitration agreement as required by the contract or breaches an arbitration agreement in some other way.
If the party who refuses to participate in an arbitration should file a lawsuit against the other party to the agreement, the other party could assert the arbitration agreement as a defense in the lawsuit.
Violations of mandatory arbitration agreements might lead to legal penalties. A party who refuses to participate in a mandatory arbitration might be subject to a contempt order or an injunction. Said party may even be ordered to award money damages for breach of contract in some cases.
Do I Need the Help of a Lawyer for My Arbitration Issue?
If you are in a dispute that involves an arbitration clause, you want to consult an experienced business lawyer for advice. This is especially true if you may be facing an arbitration hearing. While arbitrations may sometimes seem less formal than court trials, your legal rights may be at issue. You want an attorney to give you the greatest chance of success with your case.
Your lawyer can tell you whether arbitration is your only option or if you have the right to go to court. Your lawyer can guide you through the process and represent you in an arbitration or in court.
