Arbitration is a method of resolving disputes outside of court. Most arbitrations happen because of an arbitration clause in a contract, in which the parties have agreed to resolve any disputes arising out of the contract through arbitration. Parties refer their disputes to an arbitrator who reviews the evidence, listens to the parties, and makes a decision. The arbitration process is less formal than a courtroom hearing or trial and usually less expensive.
An arbitration clause may make the arbitration either mandatory or voluntary. A dispute that is subject to mandatory arbitration must go through arbitration. In voluntary arbitration, both sides submit their disagreement to arbitration after it arises.
Arbitration may or may not be binding. In a binding arbitration, the arbitrator's decision is final. It may not be reviewed or overturned by a court except in very limited circumstances. In nonbinding arbitration, either party may reject the arbitration award and demand a trial instead. Parties often treat nonbinding decisions as an independent assessment of the strengths and weaknesses of a potential lawsuit, with the aim of fostering a settlement.
Often, an arbitration agreement will designate the American Arbitration Association (www.adr.org), JAMS (www.jamsadr.com), or the National Arbitration Forum ( www.arb-forum.com) to handle the arbitration. Arbitrators from these groups are often retired judges or practicing attorneys, although some are non-lawyers with expertise in certain areas. Parties do sometimes hire attorneys to help them through the arbitration process. If the dispute involves $10,000 or less, most individuals choose to handle the process alone, with guidance from the arbitrator. For disputes involving $100,000 or more, both sides usually hire lawyers for help.