Understanding binding arbitration is essential when you're working to resolve a dispute. For example, arbitration could be used before going to small claims court to resolve the dispute quickly and efficiently. There are two types of arbitration, which are binding and non-binding. Knowing what each of those means and what kind of impact they will have on any potential court case is an essential part of deciding to use them.
What is Binding Arbitration?
Binding arbitration is a dispute resolution technique often used instead of going to court. It can also be used before filing a suit, as a means of avoiding a court battle. When arbitration is binding, the parties are required to follow through with what they agreed to in the arbitration. They'll work with a neutral third party to address their disagreement, and that third party (the arbitrator) will form a conclusion. Both parties must follow the decision of the arbitrator.
Binding vs. Non-Binding Arbitration
While binding arbitration ensures that both parties are legally required to follow the agreement, non-binding arbitration works differently.
In non-binding arbitration, both parties will work with a neutral third party to resolve their differences. Then the arbitrator will make a decision based on the arbitration. However, either party can reject that decision and demand a trial. If the parties agree to the decision or wait too long to take action, a non-binding arbitration can become a binding one.
Significance for Small Claims Court
A binding arbitration won't go to small claims court, because the process stops after the arbitrator decides. Once that decision has been made, it's final. There are a few circumstances where the decision can be changed or overturned, such as when there has been misuse of power or fraud in an arbitration case.
However, a non-binding arbi`tration can make its way to small claims court if one or both parties to the arbitration aren't happy with the outcome. If they reject what the arbitrator has decided, they'll need to prepare for a court date, and present evidence to show their side of the case.
Situations Which Require Binding Arbitration
Many larger companies have clauses in their contracts or terms of service that require binding arbitration. This helps keep them out of court because arbitration is a less-involved and less-costly process. Big companies have also been parties to lawsuits in the past. And they know that many of these suits can be handled through arbitration instead. However, smaller companies and individuals don't have these contracts, so going to court may be where they find themselves.
Filing in Small Claims Court
Filing in small claims court is one option for people and companies that don't have arbitration agreements or aren't using binding arbitration. Many arbitration needs are focused on larger-scale issues, while small claims court is for more minor disputes. Filing in small claims can also be a step taken after a non-binding arbitration has failed if one or both parties reject the conclusions reached and the decision made by the arbitrator.