The Arbitration Process

The arbitration process varies considerably from case to case but typically follows several general steps. First, the parties agree to use arbitration and choose an arbitrator (or sometimes a panel of three arbitrators). A large number of for-profit firms provide arbitrators, as do several nonprofit and government organizations, for instance, the American Arbitration Association (AAA) and the Federal Mediation and Conciliation Service (FMCS; limited to labor disputes). The AAA, for example, gives parties a list of possible arbitrators, along with short biographies of each. Both parties indicate their choices in order and cross out any on the list whom they find unacceptable. The AAA then compares the two lists and chooses the arbitrator who best matches the parties' selections. In other cases, each party chooses one arbitrator, and those two arbitrators jointly select a third.

Most often, arbitrators are chosen for their particular experience and expertise. Commercial arbitrators are often lawyers, businesspeople, or professors who have expertise in the area of the dispute (computer software, construction, telecommunications, and so forth). Labor arbitrators are usually experienced in labor law or labor relations.
After the arbitrator is selected, he or she talks with the parties to learn what the conflict is about. Sometimes a preliminary hearing is held to clarify the issues in dispute, the uncontested facts, and the procedures to be used for the rest of the process. The arbitrator also gathers information about the case through written documents and summaries of each side's position. Usually the written information is supplemented by oral information presented in a full hearing. This hearing can be formal—almost like a court hearing—or it can be informal; it depends on the arbitrator's style, the parties' wishes, and any requirements detailed in the agreement to arbitrate. Usually, both parties present their arguments and respond to their opponent's arguments and any arbitrator questions. They often present witnesses, who may be cross-examined.

After the hearing, the arbitrator (or arbitration panel) considers the evidence and makes a decision, which may be an all-or-nothing outcome or a compromise, depending on the facts of the case. If necessary, the decision may be explained in a written document. In traditional arbitration, this decision is binding—it cannot be appealed except in rare circumstances. In court-annexed arbitration or advisory arbitration, however, the decision is not binding unless both parties agree to it. If they do not, the parties are free to pursue litigation or any other dispute resolution procedure.