Define arbitration. What is the difference between binding and nonbinding arbitration? What role do arbitration clauses play in the arbitration process?

Question

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Answer 1

Arbitration is defined as the settling of a dispute by submitting it to a disinterested third party (other than a court), who renders a decision that may or may not be legally binding.
In nonbinding arbitration, the parties submit their dispute to a third party but remain free to reject the third party's decision. Nonbinding arbitration is more similar to mediation than to binding arbitration. If after a nonbinding arbitration award is given the parties are dissatisfied with the results, they may ignore the arbitrator's decision and have the dispute litigated in court. In binding arbitration cases, a party can
usually appeal the decision to a court for judicial review.
Frequently, disputes are handled through arbitration because of an arbitration clause in a contract entered into between the parties. An arbitration clause provides that
any dispute arising under the contract will be resolved by arbitration. Also, most
states have statutes under which arbitration clauses are enforced, and some state statutes compel arbitration of certain types of disputes, such as those involving
public employees. There is also a federal statute, the Federal Arbitration Act of 1925, which enforces arbitration clauses in contracts relating to certain types of activities, such as those involving interstate commerce.