What Is Arbitration?

Arbitration, a non-court procedure (alternative
dispute resolution – ADR) for resolving disputes
using one or more neutral third parties -- called
the arbitrator or arbitration panel. Arbitration
uses rules of evidence and procedure that are
less formal than those followed in trial courts,
which usually leads to a faster, less-expensive
resolution.

There are many types of arbitration in common
use: Binding arbitration is similar to a court proceeding in that the arbitrator has the power to impose
a decision, although this is sometimes limited by agreement -- for example, in "hi-lo arbitration" the
parties may agree in advance to a maximum and minimum award. In non-binding arbitration, the
arbitrator can recommend but not impose a decision.

Many contracts -- including those imposed on customers by many maritime, financial, and health care
organizations -- require mandatory arbitration in the event of a dispute. This may be reasonable
when the arbitrator really is neutral, but is justifiably criticized when the large company that writes the
contract is able to influence the choice of the arbitrator.

This manner of dispute resolution is especially effective with technical or specialized cases, or those
cases where the parties are looking to maintain some level of confidentiality and are looking to avoid
the publicity, expense and excessive time involved with an open trial.