Define Arbitration in Law: Everything You Need to Know
Arbitration is a type of dispute resolution that happens outside of the courtroom with the intervention of an arbitrator.3 min read updated on February 01, 2023
To define arbitration in law, you need to understand dispute resolution. Arbitration is a type of dispute resolution that happens outside of the courtroom with the intervention of an arbitrator.
What Is Arbitration?
Two parties involved in a dispute can have their resolution handled by a third party, either an arbitral tribunal, arbiter, or arbitrator. The parties agree to whatever decision this third-party arbitrator makes regarding their dispute. Arbitration is a type of alternative dispute resolution, or ADR. Other types of ADR include:
- Non-binding determination by expert.
These other types of ADR are different from arbitration because they are not always legally binding. The result of arbitration is just as binding as a court litigation.
How Is Arbitration Used?
Today, arbitration is most common in commercial disputes. International commercial transaction disputes and credit obligation disputes are usually resolved through arbitration. Labor, family, and consumer disputes are also frequently handled through arbitration. Certain disputes that arise in interactions between states or investors are best resolved with arbitration.
An arbitration is like a small-scale trial. This can take place before the trial for a lawsuit with the hopes that a resolution will be reached before trial and therefore negate the need for a full-scale trial.
Arbiters, or those who conduct the arbitration, are not judges and need to have their decision approved by the court. An arbitrator is an official approved to make the final decision in the dispute. Sometimes an arbitral tribunal is used, which is a panel provided by an organization like the American Arbitration Association. These third-party deciders can help avoid having the courts filled with trials that don't need a full court trial.
When arbitration is required by contract through an arbitration clause, the decision can be viewed as a legal judgment through a court petition. If one of the parties has an issue, they can protest the decision on the grounds of gross injustice, fraud, or collusion. Some states require arbitration of cases by an experienced lawyer with a non-binding decision before a decision from an arbitrator. They hope that the lawyer will show the parties the most likely result of their dispute and therefore help them better accept the arbitration's final judgment.
Because the rules regarding evidence and proceedings are not as formal in the arbitration process as they are in the court, arbitration is less expensive and quicker than a full trial.
How To Arbitrate
Arbitration might look different depending on the type of dispute it is handling. All arbitrations begin with a notice of intent. The party filing the complaint will send this notice to the accused to notify them of the dispute and their complaints. The party filing allows a certain amount of time for a response. Then the arbitrators are chosen. Finally, the hearing takes place.
Both parties usually have some input in what kind of panel or arbitrator they have. If there's a contract involved, usually the contract will specify what type of arbitration is to take place in the event of a dispute.
When Can Parties Arbitrate?
A party can choose to arbitrate a dispute or legal problem at any time, but they have to be in agreement with the other party. If one party wants to enforce their right to a full trial, they can do so, unless they've signed a contract stating that they agree to arbitration. Arbitration is much more common than many people realize. Frequently, consumer transaction disputes are resolved through arbitration, and these happen daily.
What Is an Arbitration Clause?
Many different contract types include arbitration clauses including:
- Consumer contracts.
- Credit card contracts.
- Employment contracts.
- Medical care agreements.
- Cell phone contracts.
When an arbitration clause is included in a contract, the signee is agreeing to handle any disputes that may arise regarding this specific agreement through arbitration. These clauses will also usually lay out specifics like the arbitrator selection process, the location for the hearing, and who must pay for the process.
An arbitration clause might also specify that any decisions made by the arbitrator during the hearing are legally binding. This means that the dispute cannot be taken to court after the arbitration decision has been made. The only way around this is if one of the parties involved can prove that misuse of power or fraud took place during the arbitration process.
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