Arbitration is a form of alternative dispute resolution in which two or more parties settle a disagreement.
In the U.S., there are two forms of arbitration agreements:
- The parties sign a contract with an arbitration clause stating that should a dispute arise, it will be resolved by arbitration.
- The parties sign a submission agreement after a dispute has arisen in which the parties mutually consent to arbitration.
Arbitration offers a number of advantages:
- Resolve the dispute in a private setting not subject to press coverage.
- Decide what procedural rules will be followed during the hearing.
- Reach a settlement more quickly than in a courtroom.
- Achieve a resolution in a more cost-effective manner than with a trial.
- Maintain confidentiality. Arbitration information and the arbitrator’s award are not made public as with litigation.
The arbitration process consists of the following steps:
- The parties sign a legally binding contract, mutually consenting to settle the dispute through arbitration.
- An arbitrator or panel of arbitrators is chosen. Each party must agree on one arbitrator, or each party chooses one arbitrator and the two arbitrators then select a third to create a panel.
- Before the arbitration hearing, both parties may receive documents from other parties.
- During the hearing, each party has the right to present documents and witnesses and to cross-examine the adverse witnesses.
- The arbitrator makes a decision, usually within a few weeks of the hearing.
Unless the parties agreed to nonbinding arbitration, the arbitrator’s decision is final and may be enforced in court if not honored by one party.
Although an arbitrator commonly awards monetary damages to one party, he or she also may order specific performance of a contract or order a party either to do something or refrain from doing something. While an unsatisfied party may appeal to a court, courts seldom overturn arbitrators' decisions.
Arbitration is used to resolve disputes such as construction-defect claims, insurance bad faith, personal injury damages, wrongful termination, workers’ compensation claims, stock broker transactions, agricultural business and environmental issues and the division of property in probate and estate cases.
When you need a less adversarial method than litigation to resolve a civil or commercial dispute, arbitration might provide a solution that will preserve a family or business relationship.