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What are the Arbitration Processes?
Non-binding Arbitration
In non-binding arbitration, the parties are not bound to the decision made by the arbitrator(s). Because of that optional feature, some circles consider “non-binding arbitration” to be a misnomer. This is because the term “arbitration” is generally identified or used as a binding process. Thus, non-binding arbitration is sometimes seen as a neutral evaluation with a longer, more formal “hearing” than the mediation process – perhaps more akin to the first half of a mini-trial process. In any event, the purpose is usually to facilitate negotiations by allowing the parties to test the strength of their cases and obtain an opinion of independent third parties as to the likely outcome at trial.
Because it is non-binding, the parties usually elect to make it more streamlined, efficient, and less costly than conventional arbitration. A simple case can often be presented in a few hours, and the most complex case within a few days. Unless the stakes are very high indeed, it rarely makes sense to hold a non-binding arbitration that takes significantly more time.
Incentive Arbitration
This is a form of non-binding arbitration in which the parties contract to allow a penalty to be imposed on the party who rejects the arbitrator’s award and pursues the claim in court. If that party does not improve his position through litigation, a penalty of some specified percentage or formula is applied.
Binding Arbitration
In binding arbitration, the neutral’s decision is binding on the parties - just as would be a decision made by a judge or jury. In fact, a binding arbitration decision is generally more binding than a judgment received in the court system, because in most instances, there are no post decision remedies available to the parties after the binding arbitration is completed.
Also, like litigation, binding arbitration is an adversarial, adjudicative process designed to resolve specific issues submitted by the parties. Yet, arbitration differs significantly from litigation. It does not require conformity with rules of evidence and procedure. There is flexibility in choice of decision makers, and the proceeding is conducted in private rather than a public forum. Access to discovery may also be limited.
Nevertheless, under the Uniform Arbitration Act - in force in every state in some form - and the United States Arbitration Act, Title 9, U.S.C., arbitration awards are enforceable by court order.
The number of ways in which parties can elect to tailor an arbitration process is virtually unlimited. They can design a process limiting the presentation of arguments and proof to essential issues. They can negotiate reductions on risk by setting limits on the arbitration award. They can select an experienced, qualified neutral(s) to decide the dispute rather than compromise the issues. The latter is often a significant advantage over the judicial system as judges are often not experienced in the field of law upon which they are sitting and judging.
Arb-Med
Another recent development is allowing an arbitrator to act as a mediator after he or she has heard the arbitration. The arbitrator then reveals the arbitration results only if there is no agreement in mediation. This gives the arbitrator-mediator considerable power in facilitating the negotiation.
Bracketed or High-Low Arbitration
In this process the parties negotiate before the arbitration, setting parameters for the arbitrator. They may agree that the arbitrator will decide only the issue of liability: if the defendant is found liable, it will pay a predetermined sum to the plaintiff, if no liability is found, the defendant will pay a predetermined lesser sum to the plaintiff. Or, the parties may permit the arbitrator to deliver a verdict on liability and damages, while agreeing in advance on minimum and maximum payment sums.
The parties may agree to disclose the bracketed range to the arbitrator. However, they sometimes agree that the arbitrator should not be aware of the payment range -- or even of the fact that a bracketed range has been agreed upon. This process is referred to as “blind bracketed” arbitration. Although the arbitrator is not forced to choose between the two demands, the arbitrator must select a settlement figure within the range negotiated. The parties are guaranteed that whatever the arbitrator’s decision, neither party will by liable for a figure outside the agreed-to range. Again, this process combines consensual negotiation with adjudicative arbitration.
Baseball or Final Offer Arbitration
This dispute resolution process receives its name from the fact it is used in player salary negotiations in major league baseball. It is usually binding and is characterized by each party making an offer to settle at a particular figure. The arbitrator must then, after submission of evidence at the hearing, choose between the two figures submitted. The arbitrator is essentially asked to decide which seems to him or her to be more appropriate based upon the evidence heard. The arbitrator does not have the authority to modify the figures submitted or select another figure. This forced choice is intended to encourage the parties to make as reasonable a demand as possible, thus it combines the consensual process of negotiation with the adjudicative process of arbitration.
Final offer or baseball arbitration sets up entirely different dynamics than bracketed arbitration. In bracketed arbitration, the parties have an incentive to negotiate brackets that leave room for them to “win.” Thus, the plaintiff will want to increase the high end of the bracket. The defendant is driven in the opposite direction. In final offer arbitration, parties are forced to name reasonable sums for fear that an inflated (or grossly deflated) figure will fall too far from the arbitrator’s award. They are driven toward the same range, toward a proposal that will be considered reasonable. This dynamic often achieves settlement before the hearing, or before an award is rendered.
Night Baseball
In this variation of baseball arbitration, the parties establish their positions but do not reveal them to the arbitrator. This is done to allow the arbitrator to focus on the arguments of the case without being influenced by the parties’ demands. The demand that is closer to the arbitrator’s decision becomes the arbitration award.
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