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Arbitration is a legal technique for the resolution of disputes outside the courts using one or more neutral third parties called an 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.  Many contracts including those imposed on customers by many 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.

Arbitration is today most commonly used for the resolution of commercial disputes, particularly in the context of international commercial transactions and sometimes used to enforce credit obligations. It is also used in some countries to resolve other types of disputes, such as labour disputes, consumer disputes or family disputes, and for the resolution of certain disputes between states and between investors and states.

Arbitration may be used as an alternative means of dispute resolution whenever all parties consent.  Consent may be obtained either before or after an issue in controversy has arisen. A party may agree to

  • submit only certain issues in controversy to arbitration; or
  • arbitration on the condition that the award must be within a range of possible outcomes.

An arbitration agreement that sets forth the subject matter submitted to the arbitrator shall be in writing.  Each such arbitration agreement shall specify a maximum award that may be issued by the arbitrator and may specify other conditions limiting the range of possible outcomes.

Further, an agency may not require any person to consent to arbitration as a condition of entering into a contract or obtaining a benefit.  An officer or employee of an agency shall not offer to use arbitration for the resolution of issues in controversy unless such officer or employee—

  • would otherwise have authority to enter into a settlement concerning the matter; or
  • is otherwise specifically authorized by the agency to consent to the use of arbitration.

Prior to using binding arbitration [5 USCS §§ 571 et seq.], the head of an agency, in consultation with the Attorney General and after taking into account the factors in section 572(b) [5 USCS § 572(b)], shall issue guidance on the appropriate use of binding arbitration and when an officer or employee of the agency has authority to settle an issue in controversy through binding arbitration.[i]

The parties to an arbitration proceeding are entitled to participate in the selection of an arbitrator, who must be a neutral[ii]. An arbitrator to whom a dispute is referred under the Act may regulate the course and conduct of arbitral hearings; administer oaths and affirmations; compel the attendance of witnesses and production of evidence at the hearing pursuant to the provisions of the Federal Arbitration Act[iii], to the extent the agency involved is otherwise authorized by law to do so; and make awards.

[i] 5 USCS § 575

[ii] 5 USCS § 577

[iii] 5 USCS § 577

Inside Arbitration