Generally, arbitration is entered into based upon a contract demanding arbitration. These can include contracts for consumers, but more often it is in union contracts, employment contracts, and business to business agreements. The arbiter, or potentially even a panel of arbiters, are chosen by the parties from a variety of sources, including organizations and companies who provide professional, trained arbiters. Some arbitrators are practicing judges, while others were lawyers or other individuals trained and accredited as arbiters. No specific degree is required for a person to become an arbiter.
Similar to a trial, the sides present their evidence to the arbiter. Witnesses are called to answer the questions of both sides. At the end of a day or several days, depending on the complexity of the case, the arbiter will give an award to the winning party. These awards are legally binding upon both parties.
Arbitration has some benefits and problems. One benefit is arbitration tends to be less formal than litigation. The arbiter tends to allow more evidence and to be a little more loose with the rules traditionally accepted in litigation. These arbitrations also can allow for quicker resolution of an issue.
One major problem is the arbiter does not have to have a legal background. This does not mean they make bad decisions, but it can mean certain issues are dealt with differently than in a court of law. Also, arbitration awards will not be overturned except for exceptionally good reasons. This gives the parties the certainty of a final decision, but at the same time it may limit the options such as the viability of appeal.
Arbitration is mandated in some cases and is a great way of resolving issues. There are issues with the process, like any process. In general and on average, arbitration should cost less than litigation and take less time than a court case. If you are facing the prospect of arbitration, please speak with an attorney to learn more about the process.