Binding and Non-Binding Arbitration

When judges and lawyers use the term “arbitration,” they may be referring to one of two different processes that are known as “binding arbitration” and “non-binding arbitration.”

Binding Arbitration

The more traditional arbitration process is called binding arbitration. Under this approach, the parties have a contractual agreement to submit their dispute to a neutral third party, known as the “arbitrator.” Parties can choose to customize nearly any aspect of the arbitration process, from the setting to the method of selecting arbitrators, and even to the extent of allowable discovery. Absent an agreement, there is generally no right to discovery in binding arbitration proceedings, and the rules of evidence governing civil actions usually do not apply.

An agreement to arbitrate can either be made before any conflict arises, or be stipulated to by the parties at any time to resolve their case more quickly, cheaply and/or confidentially. Unless the parties stipulated to binding arbitration, or unless there is a valid and binding arbitration clause in a previous agreement between them, a court may not order the use of the binding arbitration process over allowing the parties to have their day in court.

The arbitrator has the power to examine the evidence and resolve the dispute via a written or oral decision. The arbitrator does not need to base his or her rulings on the law; for example, an arbitrator may base the decision on his or her interpretation of religious law, or any agreed-upon set of trade rules. When the arbitration concludes, the court will usually enter a judgment which confirms the award. Courts generally will not second-guess an arbitrator’s decision, except under very limited circumstances, such as when the arbitrator’s decision was the result of fraud or bias.

Non-Binding Arbitration

Court-ordered arbitration sessions are non-binding, and they are often called “judicial arbitration.” See Cal. Code Civ. Proc. § 1141.10 et seq.This form of arbitration is not dependent upon the agreement of the parties; it may be ordered by the court. However, the parties may also stipulate to a judicial arbitration. Judicial arbitration may be mandatory for most civil actions in larger courts, especially for unlimited civil cases with high potential damages awards.

Judicial arbitration permits full and complete discovery, and most or all of the rules of evidence apply. The purpose of this form of arbitration is to reduce the civil backlog and encourage pretrial settlements. However, the arbitrator’s decision is not binding, and is only meant to encourage the parties to agree to its award.