2.3 Arbitration

Arbitration is a powerful tool in business law for resolving disputes outside of court. It comes in different flavors: voluntary or involuntary, binding or non-binding. Each type has its own implications for the parties involved and the enforceability of decisions.

Businesses use arbitration in various contexts, from labor disputes to commercial transactions. The process involves selecting arbitrators, initiating proceedings, presenting evidence, and reaching a decision. Key features like confidentiality and flexibility make arbitration an attractive option for many companies.

Arbitration in Business Law

Voluntary vs involuntary arbitration

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• Voluntary arbitration occurs when parties willingly agree to resolve disputes through arbitration, often specified in contracts or agreements before disputes arise (employment contracts, business partnerships)
• Involuntary arbitration happens when parties are compelled to arbitrate by law or court order, may occur when a contract or agreement mandates arbitration (consumer contracts, insurance policies)

Binding vs non-binding arbitration

• Binding arbitration produces a final and legally enforceable decision by the arbitrator, parties waive their right to appeal or litigate the matter in court (labor disputes, construction contracts)
• Non-binding arbitration results in an advisory decision that is not legally enforceable, parties may choose to accept the decision or pursue other legal options (family law matters, small claims disputes)
• The enforceability of arbitration awards depends on whether the arbitration is binding or non-binding

Applications of arbitration in business

• Labor disputes often include arbitration clauses in collective bargaining agreements to resolve grievances between employers and unions, helps maintain productive working relationships and avoid strikes (teacher unions, automotive industry)
• Business transactions such as contracts for goods, services, or partnerships may include arbitration provisions, offers a private, efficient way to resolve commercial disputes while preserving business relationships and protecting sensitive information (franchise agreements, joint ventures)
• Property disagreements involving boundary disputes, easements, and title issues can be resolved through arbitration, provides a faster, less expensive alternative to litigation and allows for the selection of arbitrators with specialized knowledge in property law (real estate transactions, landlord-tenant disputes)

Procedures in arbitration process

1. Selecting arbitrators involves parties agreeing on the number and qualifications of arbitrators based on expertise, impartiality, and availability, arbitration organizations may provide lists of qualified arbitrators (American Arbitration Association, JAMS)

   • Neutrality of arbitrators is crucial to ensure a fair and unbiased process

2. Initiating the arbitration process begins with one party sending a notice of arbitration to the other party outlining the dispute and the desired resolution

3. Pre-hearing procedures involve parties exchanging relevant documents and witness lists, arbitrators may hold preliminary conferences to clarify issues and set timelines

   • Discovery may be limited compared to traditional litigation, but still allows parties to gather necessary information

4. Arbitration hearing allows parties to present opening statements, evidence, and witness testimony, cross-examination of witnesses is allowed, and arbitrators may ask questions to clarify points or gather additional information

   • Due process principles are applied to ensure fairness in the hearing process

5. Closing arguments and deliberation involve parties presenting closing arguments summarizing their case, arbitrators review the evidence and arguments presented and deliberate to reach a decision based on the applicable law and facts

6. Arbitration award is issued in writing by the arbitrator and may include findings of fact, legal conclusions, and remedies, in binding arbitration, the award is final and enforceable by law

Key features of arbitration

• Confidentiality is often maintained throughout the arbitration process, protecting sensitive business information
• Jurisdiction in arbitration is determined by the arbitration agreement and relevant laws
• Arbitration is a form of alternative dispute resolution, offering a more flexible and often faster approach compared to traditional litigation