Arbitration is a form of alternative dispute resolution in which the parties agree to have their dispute decided outside of court by an arbitrator. Depending on the agreement and the governing law, the arbitrator’s decision may be binding.

Arbitration is commonly used because it can be less formal, less expensive, and faster than traditional litigation, although the exact process depends on the agreement, the forum, and the applicable rules.

Arbitration Explained

Cornell Wex explains that arbitration is an alternative dispute resolution method in which parties have their case heard out of court by a qualified arbitrator and notes that, under the Federal Arbitration Act, arbitral decisions can be binding. California court ADR guidance likewise explains that arbitration is one of the common ADR processes offered to help resolve civil disputes without a trial.

The Term Arbitration in Different Legal Contexts

Arbitration appears in commercial disputes, employment agreements, consumer contracts, securities matters, and other settings where parties agree in advance or after a dispute arises to use a private decision-maker instead of a judge or jury.

The scope of discovery, evidentiary rules, and appellate review in arbitration may differ from court litigation, which is one reason parties pay close attention to the wording of arbitration clauses.

Common Misconceptions About the Meaning of Arbitration

A common misconception is that arbitration is just an informal settlement talk. In reality, arbitration is often an adjudicative process that results in a decision by an arbitrator.

Another misconception is that arbitration always offers the same procedures as court. It often operates under different rules and may involve narrower discovery and review.