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Arbitration refers to an alternative dispute resolution method where the parties in dispute agree to have their case heard by a qualified arbitrator out of court. Under the Federal Arbitration Act, decisions reached through arbitration are binding just like a court case is and pursuing a claim through arbitration precludes you from also raising it in the traditional court system. Arbitration is used because it is often much less expensive than litigation due to its less stringent procedural requirements. 

Of the potential alternative dispute resolution methods available, arbitration is the most similar to taking your case to court. For example, while arbitrators are not subject to the Federal Rules of Evidence, they nonetheless allow the parties in dispute to enter evidence when they deem it fair. Furthermore, parties undergoing arbitration typically agree to conduct some limited form of discovery

In recent times, arbitration has become controversial due to the widespread use of mandatory arbitration clauses. Under these clauses, parties contracting with each other agree to submit any future dispute to arbitration rather than to a court of law. These clauses are often included within contracts of adhesion and are therefore prerequisites to employment. As a result, many people have raised questions regarding whether the constitutional right of employees to a trial are being infringed upon. Nonetheless, the Supreme Court has upheld the validity of mandatory arbitration clauses on multiple occasions

Notably, the Federal Arbitration Act does not apply to seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce. This exception applies regardless of whether the worker is considered an employee or an independent contractor. 

[Last updated in June of 2022 by the Wex Definitions Team