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Arbitration is a form of alternative dispute resolution — specifically, a legal alternative to litigation whereby the parties to a dispute agree to submit their respective positions (through agreement or hearing) to a neutral third party (the arbitrator's or arbiter's) for resolution. Arbitration may also serve a distinct purpose: as an alternative to strikes and lockouts as a means of resolving labor disputes. Labor arbitration comes in two varieties: interest arbitration, which provides a method for resolving disputes about the terms to be included in a new contract when the parties are unable to agree, and grievance arbitration, which provides a method for resolving disputes over the interpretation and application of a collective bargaining agreement.
Commercial and other forms of contract arbitration Agreements to arbitrate were not enforceable at common law, though once the parties had actually submitted a pending dispute to an arbitrator, the arbitrator's judgment was usually enforceable. During the Industrial Revolution, large corporations became increasingly opposed to this policy. They argued that too many valuable business relationships were being destroyed through years of expensive adversarial litigation, in courts whose rules differed significantly from the informal norms and conventions of businesspeople (the private law of commerce, or jus merchant). Arbitration was promoted as being faster, less adversarial, and cheaper. The result was the New York Arbitration Act of 1920, followed by the United States Arbitration Act of 1925. The USAA is now known as the Federal Arbitration Act. Due to the subsequent judicial expansion of the meaning of interstate commerce, the U.S. Supreme Court reinterpreted the FAA in a series of cases in the 1980s and 1990s to cover almost the full scope of interstate commerce. In the process, the Court held that the FAA preempted many state laws covering arbitration, some of which had been passed by state legislatures to protect their consumers against powerful corporations. Since commercial arbitration is based upon either contract law or the law of treaties, the agreement between the parties to submit their dispute to arbitration is a legally binding contract. All arbitral decisions are considered to be "final and binding." This does not, however, void the requirements of law. Any dispute not excluded from arbitration by virtue of law (e.g. criminal proceedings) may be submitted to arbitration. Labor arbitration Arbitration has also been used as a means of resolving labor disputes for more than a century. Labor organizations in the United States, such as the National Labor Union, called for arbitration as early as 1866 as an alternative to strikes to resolve disputes over the wages, benefits and other rights that workers would enjoy. Governments have also relied on arbitration to resolve particularly large labor disputes, such as the Coal Strike of 1902. This type of arbitration is commonly known as interest arbitration, since it involves the mediation of the disputing parties' demands, rather than the disposition of a claim in the manner a court would act. Interest arbitration is still frequently used in the construction industry to resolve collective bargaining disputes. The United Steelworkers of America adopted an elaborate form of interest arbitration, known as the Experimental Negotiating Agreement, in the 1970s as a means of avoiding the long and costly strikes that had made the industry vulnerable to foreign competition. Major League Baseball uses a variant of interest arbitration, in which an arbitrator chooses between the two sides' final offers, to set the terms for contracts for players who are not eligible for free agency. Unions and employers have also employed arbitration to resolve employee grievances arising under a collective bargaining agreement. The Amalgamated Clothing Workers of America made arbitration a central element of the Protocol of Peace it negotiated with garment manufacturers in the second decade of the twentieth century. Grievance arbitration became even more popular during World War II, when most unions had adopted a no-strike pledge. The War Labor Board, which attempted to mediate disputes over contract terms, pressed for inclusion of grievance arbitration in collective bargaining agreements. The Supreme Court subsequently made labor arbitration a key aspect of federal labor policy in three cases which came to be known as the Steelworkers' Trilogy. The Court held that grievance arbitration was a preferred dispute resolution technique and that courts could not overturn arbitrator's awards unless the arbitrator exceeded his or her authority, engaged in fraud or corruption, or violated basic due process. Securities arbitration In the United States securities industry, arbitration has long been the preferred method of resolving disputes between brokerage firms, and between firms and their customers. The securities industry uses a pre-dispute arbitration agreement, where the parties agree to arbitrate their disputes before any such dispute arises. Those agreements were upheld by the United States Supreme Court in Shearson v. MacMahon, 482 U.S. 220 (1987) and today nearly all disputes involving brokerage firms are resolved in arbitration. The process operates under its own rules, and is described in an article Introduction to Securities Arbitration. Securities arbitrations are held primarily by the NASD Dispute Resolution program and the New York Stock Exchange. Judicial arbitration Some state court systems have promulgated court-ordered arbitration; family law (particularly child custody) is the most prominent example. Judicial arbitration is often merely advisory dispute resolution technique, serving as the first step toward resolution, but not binding either side and allowing for trial de novo. Litigation attorneys present their side of the case to an independent teritary lawyer, who issues an opinion on settlement. Should the parties in question decide to continue to dispute resolution process, there can be some sanctions imposed from the initial arbitration per terms of the contract. Proceedings Under U.S. law, either party to an arbitration may appeal from the arbitrator's decision to a court, however the court will generally not change the arbitrator's findings of fact but will decide only whether the arbitrator was guilty of malfeasance, or whether the arbitrator exceeded the limits of his or her authority in the arbitral award or whether the award conflicts with positive law. The Supreme Court has described the standard of review as one of the narrowest known to Western jurisprudence. Wherever so seen, arbitration may be the best approach to the legal manners and parties involved. Arbitrators No definitive statement can be made concerning the credentials or experience levels of arbitrators, although some jurisdictions have elected to establish standards for arbitrators in certain fields. Several independent organizations, such as the American Arbitration Association and the National Arbitration Forum, offer arbitrator training programs and thus in effect, credentials. Generally speaking, however, the credibility of an arbitrator rests upon reputation, experience level in arbitrating particular issues, or expertise/experience in a particular field.