Arbitration
A private dispute resolution process where a neutral arbitrator (or panel) hears evidence and issues a binding or non-binding decision — outside the court system.
Arbitration is a private adjudication process where parties present their case to one or three arbitrators, who issue a written decision (award). Binding arbitration produces a final, enforceable decision with very limited appeal rights — courts will confirm arbitration awards unless there was fraud, corruption, or arbitrator misconduct. Non-binding arbitration (less common) allows either party to reject the award and proceed to court.
Mandatory arbitration clauses in consumer contracts (credit cards, employment agreements, service agreements) require consumers to arbitrate rather than sue. Courts have generally upheld these clauses. Critics argue they favor businesses — arbitration is typically confidential, class actions are often waived, and repeat-player businesses may have an advantage with frequently used arbitration services like AAA or JAMS.
Arbitration costs vary: JAMS charges $250–$500/hour per arbitrator (split by parties); AAA has filing fees based on claim amount. For claims under $75,000, arbitration can be faster and cheaper than litigation. For larger, complex matters, arbitration can cost more than court.
Real-World Example
The software consultant's contract contained a mandatory arbitration clause; when payment was withheld, she filed with AAA instead of court, paying a $1,250 filing fee and receiving a binding $38,000 award in five months.