Arbitration

Arbitration is a dispute resolution process in which the disputing parties present their case to an impartial third party, who then issues a judgment. Like court-based adjudication, (i.e., litigation), arbitration is an adversarial rather than a cooperative process. However, it is usually not as formal as court-based adjudication. Technically, litigation is an arbitration process, but the term arbitration is usually reserved for private processes in which an independent arbitrator issues the decision.

Although it is applied in a variety of settings, arbitration is most commonly used in labor-management, commercial, and consumer conflicts. In 1985, more than 95 percent of all collective bargaining contracts contained a provision for final and binding arbitration to resolve labor-management disputes over such things as discipline, discharge, promotions or demotions, productivity, pensions, and seniority (American Arbitration Association 1996; Goldberg, Green, and Sander 1985, 189).
An example of a consumer case that might be arbitrated is a situation in which a consumer believes that a car repair shop damaged his or her car instead of fixing it and refuses to pay, demanding instead that the shop pay for the additional repairs needed from another shop. An arbitrator would listen to the arguments of both sides and then come to a decision—for instance, that the shop was not at fault and that the car owner should pay his or her debt in full, or that the shop was indeed at fault and should make the necessary repairs for free or reimburse the owner for the costs of obtaining the repairs elsewhere. Although these hypothetical outcomes are all-or-nothing, arbitration awards can be compromises as well. For example, the arbitrator might conclude that the shop did not do its job as well as it should have, but that it is not liable for further damage. Therefore, the arbitrator might say that the car owner owes the shop nothing, but the shop does not owe the consumer anything either.
Arbitration differs from mediation in that mediators do not make decisions; they only help the parties come to a decision themselves. Although an arbitrator's decision is usually final and binding, the disputing parties still control the range of issues to be resolved and often many of the procedural aspects of the process (although these are sometimes predetermined in a contract).
Most arbitration is voluntary; the disputants agree to enter into the process either after the dispute has occurred or beforehand through a contract or similar agreement. Many commercial and consumer contracts—for instance, health insurance contracts and brokerage agreements—contain a clause requiring that arbitration be used to resolve any disputes that arise in the implementation of the agreement.

Unlike adjudication, in which one party sues and the other party is forced to respond, both parties to a conflict must agree to arbitration in order for it to occur. Once a contract stipulating the use of arbitration to resolve disputes is signed, however, arbitration becomes mandatory. In either situation, once such an agreement is made, the arbitrator's ruling is final. (This contrasts with mediation, in which the final agreement can be rejected.) In addition, according to the U.S. Arbitration Act and the Uniform Arbitration Act (which has been adopted in almost every state), arbitration rules are enforceable.