what is arbitration

What is Arbitration and How Does it Work?

By Helen Halldorsson, Esq.

Many agreements that we encounter in our everyday lives contain arbitration clauses. This includes employment contracts, consumer contracts (such as those for internet and phone service, home repairs, health insurance, and the sale of products), as well as Terms and Conditions agreements for websites and apps. Since arbitration clauses are so common, it’s helpful to know what they mean and how they affect your rights. So what is arbitration? And how does it work? Keep reading to learn more.

What is Arbitration?

Arbitration (as well as mediation) is a process for resolving disputes outside of court. Arbitration is similar to traditional court proceedings in that both sides to a dispute (the “parties”) present their evidence to a neutral third-party decision-maker, called an “arbitrator” (akin to a judge), who considers the evidence and renders a decision. However, arbitration is less formal than court proceedings and there are no rights to appeal a binding arbitration decision. Arbitration hearings are confidential, whereas court proceedings are generally public.

What Disputes Can be Resolved by Arbitration?

Many day-to-day agreements that we enter into contain arbitration clauses. These clauses generally state that in the event a dispute arises out of the agreement, the parties to the agreement will use arbitration to resolve the dispute. If the agreement underlying your dispute contains an arbitration clause, your dispute may be subject to arbitration.

An arbitration clause may state that arbitration is mandatory. If it does, and the type of dispute that arises is eligible for forced arbitration, then the parties must go through arbitration to resolve the dispute. Common situations that arise that are eligible for forced arbitration include disputes about whether services were performed (or payments made) properly under a contract and certain employment disputes, such as whether an employee experienced discrimination, retaliation, or wrongful termination in the workplace. As an example, disputes that are not eligible for forced arbitration include workplace sexual harassment claims. Under the federal Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act (effective March 3, 2022), an employer cannot force an employee to arbitrate a dispute that relates to sexual harassment or sexual assault, even if the employee previously signed a mandatory arbitration agreement. This applies to disputes that arise or accrue on or after March 3, 2022. An employee may choose to arbitrate these claims voluntarily, but the employer cannot force them to.

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Pros and Cons of Arbitration

In the absence of an enforceable mandatory arbitration clause, the parties may still agree to attend arbitration voluntarily. Factors such as lower cost and greater convenience can weigh in favor of arbitrating a dispute rather than taking it to court. The confidentiality of arbitration can be considered a pro or a con, depending on your desired level of publicity. Some may wish to put the spotlight on an issue, whereas others may wish to handle things privately. Taking these considerations into account, the parties may decide together that arbitration is right for them.

Is the Arbitrator’s Decision Final?

Whether or not the arbitrator’s decision is final depends on whether the arbitration is binding or non-binding. Prior to arbitrating their dispute, the parties will determine whether the arbitration is binding or non-binding (either via the arbitration clause in their agreement, or the terms by which they agree to arbitrate voluntarily).

In binding arbitration, the arbitrator’s decision is final. The decision can only be reviewed or overturned by a court in extremely limited circumstances, such as when the arbitrator is found to have engaged in fraud or an abuse of power.

In non-binding arbitration, either party can reject the arbitrator’s decision and proceed to court instead. Non-binding arbitration can be used as a way to bring light to the strengths and weaknesses of the case and essentially “preview” how things would go in court. This can help the parties determine the value of the case, often with the intention of facilitating settlement discussions. Oftentimes, a non-binding arbitration agreement will state that the arbitrator’s decision becomes binding if the parties agree to it or a certain amount of time passes without one of the parties bringing the dispute to court.

Do I Need a Lawyer to Represent in Arbitration?

You are not required to have a lawyer in arbitration but may choose to have one. When your rights and compensation are at stake, it may be advisable to consult with an attorney. An experienced lawyer can help you present your case in a persuasive manner and help you navigate the arbitration process. This can be especially valuable if you are up against a large company or other entity with significant resources and arbitration experience. 

If you are considering arbitration and have any questions about your rights and options, contact our experienced California lawyers who can advise you of your rights. Call us at 888-686-1918 to speak with one of our arbitration attorneys today.