Arbitration is a conflict resolution process taking place outside of courts in which a neutral party decides the outcome of a dispute between two or more parties.
This decision is called an award, and it is legally binding and enforceable. If the neutral party deciding the award is just one person, this person is called an arbiter. If the decision-maker is several people, this group is referred to as an arbitration tribunal.
The arbiter or arbitration tribunal may be legal professionals, but this is not a requirement. They also don’t necessarily have to be experts on the topic of the dispute.
A number of businesses, particularly in the United States, find that they like to use arbitration as a method of resolving conflicts.
For one, even if the dispute is very technical, the arbiter doesn't necessarily have to be technical. You can't choose an arbiter for their technical knowledge any more than you could choose a judge in a court system.
Businesses also tend to favor arbitration over the courts because arbitration is:
Difficulties can also arise in instances where one of the parties involved in the dispute learns that:
EXAMPLE
When buying a used car, you might discover that the seller requires you to sign an arbitration agreement. When a problem comes up with the car, the issue is automatically turned over to an arbiter chosen by the car dealership; surprising no one, the arbiter rules in favor of the car dealership, and you have no option of going to court.Source: Adapted from Sophia tutorial by Marlene Johnson.