Settlement Negotiations During Arbitration

Most arbitration cases never reach a final award. Research consistently shows that roughly 70% to 80% of disputes end in an arbitration settlement before the arbitrator issues a decision. Whether you are the claimant or the respondent, understanding how and when to settle during arbitration can save you significant time, money, and uncertainty.

Settlement does not mean giving up. It means taking control of the outcome rather than leaving it to a third party. This guide covers when and how to negotiate a settlement, how to structure an agreement that sticks, and what risks to weigh before you sign.

Why So Many Arbitration Cases Settle

Arbitration naturally pushes parties toward resolution. The process is private, which makes both sides more willing to discuss numbers honestly. The timeline is compressed compared to litigation, creating urgency. And the costs of discovery, hearings, and post-hearing briefing give both parties a financial reason to talk.

There are also strategic reasons. Once the arbitrator issues a final award, your options for appeal are extremely limited under the Federal Arbitration Act (9 U.S.C. Sections 10-11). The grounds for vacating an award are narrow: corruption, fraud, misconduct, or the arbitrator exceeding their authority. Settlement lets both parties avoid that all-or-nothing risk.

When Can You Settle During Arbitration?

The short answer: at any point. There is no procedural rule that locks you out of negotiation arbitration discussions once a case is filed. Parties can and do settle during every phase:

• Before the preliminary conference. Some disputes settle within weeks of filing, once the respondent sees the claim has merit and the costs of fighting are high. About one in five settled cases close before any arbitrator fees are incurred.
• After discovery. Document exchange often changes the picture. A party that was confident at filing may reassess after seeing the other side's evidence. This is a common window for good faith negotiations.
• During or just before the hearing. The pressure of a looming hearing date concentrates minds. Parties who have spent months preparing are often more willing to deal.
• After the hearing but before the award. There is typically a waiting period while the arbitrator drafts the decision. Some parties use this window for a last round of talks.

How to Approach Negotiation in Arbitration

Settling during arbitration is not like negotiating from scratch. Both sides have committed resources and positions have hardened. Here are strategies that work.

Know Your BATNA

BATNA stands for "best alternative to a negotiated agreement." In arbitration, your BATNA is the award you expect to receive (or pay) if the case goes to a hearing. Before you negotiate, run an honest cost-benefit analysis: What are your best and worst realistic outcomes? How much will it cost in legal fees, arbitrator fees, and lost time to get there?

If your expected award minus remaining costs is close to what the other side is offering, settlement makes financial sense. Do not let pride override the math.

Use the Arbitrator as a Reality Check

Many arbitrators share preliminary views on certain issues during the case. If the arbitrator signals skepticism about a key argument in a procedural order or at a hearing, that signal should factor into your settlement position.

Consider Med-Arb

Mediation-arbitration, or med-arb, is a hybrid process where the parties first try mediation. If that fails, the case moves to binding arbitration. Med-arb works well when both sides want to settle but need help bridging the gap---the arbitration backstop gives everyone an incentive to negotiate seriously.

Make the First Offer Count

Research on negotiation arbitration shows that the party who makes the first reasonable offer often anchors the discussion. An opening offer that is too aggressive may shut down talks. Back your offer with a short written summary of the key evidence---one or two pages, clear and factual.

Keep the Door Open

Rejected offers are not failures---they are data points. Ask what number would work for the other side. Many cases settle on the third or fourth attempt, not the first.

How to Structure an Arbitration Settlement Agreement

Once both sides agree on terms, put the deal in writing. A settlement agreement should include:

• Payment amount and schedule. Lump sum or installments? Be specific about dates and methods.
• A mutual release. Both parties release each other from all claims related to the dispute.
• A confidentiality clause. Spell out what is confidential, who is bound, and the consequences of a breach.
• A dismissal with prejudice. This confirms neither side can refile the same claim.
• A consent award. A consent award is an arbitration award issued by the arbitrator that reflects the settlement terms. It carries the same legal weight as a contested award, enforceable under the Federal Arbitration Act and the New York Convention.

Why a Consent Award Matters

A settlement agreement on its own is just a contract. If the other side breaks it, you must file a new lawsuit to enforce it. A consent award, by contrast, can be confirmed by a court under 9 U.S.C. Section 9, giving you a much faster path to enforcement.

Ask your arbitrator to issue a consent award that restates the settlement terms. Most arbitrators will do this if both parties request it. Enforceability is one of the strongest reasons to settle within the arbitration process rather than outside of it.

The Risks of Settling vs. Going to Award

Settlement is not always the right call. Before you agree to a deal, consider these risks:

You might leave money on the table. If your case is strong, an arbitrator's award could exceed what the other side offers. This is especially true when the respondent is lowballing because they expect you to be risk-averse.

Tax treatment may differ. The way a settlement payment is structured can have different tax consequences than an arbitration award. Consult a tax advisor before finalizing terms.

Confidentiality cuts both ways. A confidential settlement keeps the other side's conduct private. If you want a public record of wrongdoing or the precedent of an award, a hearing may serve you better.

Enforcement without a consent award is harder. If you settle outside the arbitration process and the other side defaults, you are back to square one in court. Always push for a consent award.

Early Settlement: The Cost Savings Are Real

Arbitrator fees, attorney preparation time, expert witness costs, and hearing expenses all grow as a case moves forward. A party that settles before the hearing avoids the bulk of these costs.

Consider a commercial dispute with $250,000 at stake. By the time both sides complete discovery and prepare for a two-day hearing, each party may have spent $40,000 to $80,000. An early settlement---reached after initial filings and one round of document exchange---might cost each side $10,000 to $20,000.

Pre-Settlement Checklist

Before your first settlement conversation, prepare these items:

1. Review all evidence exchanged so far. Know the strengths and weaknesses of both sides.
2. Calculate your remaining costs. Include attorney fees, arbitrator fees, expert fees, and your own time.
3. Set your walk-away number. Decide the minimum (claimant) or maximum (respondent) you will accept.
4. Prepare a short settlement memo. Summarize key facts and proposed terms.
5. Confirm authority to settle. Make sure the person at the table can agree to a deal.
6. Plan for a consent award. Agree in advance that any settlement will be recorded as a consent award.

How Arbitration.net Can Help

Settling during arbitration is easier when the process itself is efficient. At Arbitration.net, our fully digital platform keeps both parties connected through secure messaging, shared document access, and flexible scheduling---all of which make settlement discussions simpler.

Our platform supports every stage, from filing through settlement or final award. If the parties reach a deal, we work with the arbitrator to issue a consent award so your agreement is enforceable from day one. Visit arbitration.net or reach our team at (888) 885-5060 to discuss your case.

Frequently Asked Questions

Can you settle during arbitration at any time?

Yes. Parties can negotiate and reach a deal before, during, or after the hearing---up until the arbitrator issues a final award. About 70% to 80% of cases settle before an award is rendered. The earlier you settle, the more you save on fees.

What is a consent award, and why does it matter?

A consent award is an arbitration award that records the settlement terms both parties agreed to. Unlike a standalone settlement agreement, a consent award is enforceable under the Federal Arbitration Act, 9 U.S.C. Section 9. A court can confirm it and convert it into a judgment, giving you a faster enforcement path.

How is settling different from abandoning my claim?

Settlement is a negotiated resolution where both sides agree to specific terms. You do not give up your claim---you exchange it for a guaranteed outcome. A well-structured settlement with a mutual release and a consent award protects both parties and removes the risk of a contested hearing.

Should I try mediation before or during arbitration?

Mediation can happen at any stage. Some parties mediate before filing; others pause the arbitration to mediate once both sides better understand the case. A med-arb structure combines both: mediation first, with binding arbitration as the backstop if talks fail. Mediation is typically faster, cheaper, and better at preserving business relationships. Contact Arbitration.net at (888) 885-5060 to learn about your options.

What happens if settlement talks fail?

The arbitration continues exactly where it left off. Settlement discussions are confidential and cannot be used as evidence at the hearing. The arbitrator will not know what numbers were discussed or who offered what. Failed talks carry no penalty---you simply proceed to a hearing and await the arbitrator's award.

This article is for educational purposes and is not legal advice. For guidance specific to your situation, consult a qualified attorney or contact Arbitration.net.