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Arbitration: Is it Required?

Arbitration: Is it Required?

Arbitration: Is it Required?

Arbitration is an out-of-court process whereby a neutral third-party arbitrator renders a final and binding decision on a dispute between two parties. Notably, some contractual agreements mandate arbitration, while others do not. In this article, we will explore the question of whether arbitration is required and under what circumstances.

What is Arbitration?

Before we delve into the issue of whether arbitration is required, it is essential to understand what it entails. Arbitration is a form of Alternative Dispute Resolution (ADR) where two parties agree to settle their dispute by way of a third-party arbitrator. The decision of the arbitrator is binding and final, meaning that the parties cannot appeal to a higher court. Arbitration provides a chance to resolve disputes outside of the judicial system, alleviating the expensive, time-consuming, and public nature of the traditional litigation process.

When is Arbitration Required?

Arbitration may be required in certain scenarios, such as:

Employment Contracts

Often, employment contracts mandate that an employee cannot take a dispute to court but must opt for arbitration instead. With this type of agreement, arbitration is necessitated.

Consumer Contracts and Agreements

Consumer contracts sometimes require that individual disputes be resolved through arbitration. When a consumer agrees to, say, the terms and conditions of a product or service they purchase, they might also consent to arbitration as a way to settle disputes.

Arbitration Clauses in Commercial Contracts

Commercial agreements may contain arbitration clauses that mandate arbitration. These clauses may outline that disputes arising between the signatories to the contract shall be resolved through an arbitrator.

Is Arbitration Always Required?

It is common for some contracts to exclude the arbitration clause and rather allow court proceedings to take place. This is often dependent on the negotiation between the signatories to the contract. Many businesses, for example, choose to have arbitration clauses placed in contracts because it allows for quicker resolution of disputes, confidentiality, reduced litigation costs, and flexibility in the dispute resolution process.


While it is not mandated that legal disputes be resolved only through arbitration, it has advantages that make it an attractive option for many parties. There are instances where both parties agree to resolve a dispute in court, through mediation, or another dispute resolution process. Nonetheless, if you are a signatory to an agreement that contains an arbitration clause, you must honor it. It is essential to understand that entering into a contract with an arbitration clause means committing to ADR if a dispute arises. Arbitration is a beneficial means of resolving disputes, particularly when the parties value privacy, speed, flexibility, and cost-effectiveness. As such, it is advisable to operate with discretion and obtain legal advice before signing any agreement.

What is Arbitration?

Arbitration is a form of alternate dispute resolution in which an outside party, known as an arbitrator, evaluates a civil dispute between parties and, in essence, acts as the “judge and jury.”  The decision that the arbitrator makes is often binding upon the parties involved.  A court of law is, in no way, involved in arbitration and will only interfere when there are egregious actions taken on the part of the arbitrator.

When is arbitration binding?

Arbitration can be either “binding” or “non-binding.”  Binding arbitration means that the successful party in arbitration takes an arbitration award.  If the unsuccessful party to the arbitration refuses to honor the arbitration award the court can interfere and force the unsuccessful party to honor the arbitration agreement.

“Non-binding” arbitration is exactly what it sounds like, arbitration that does not result in a permanent resolution that can be enforced by the court system.  Non-binding arbitration is usually used as a forum to resolve differences between the parties but no one must be bound by the arbitrator’s decision.

Are there any safeguards to arbitration?

As noted earlier, arbitration occurs with little to no court involvement.  As such it is up to the parties involved to be cautious about whom they select as an arbitrator.  At times the result of arbitration can be unjust and when arbitration results in a completely unfair result the courts may intercede.  The instances when a court will review an arbitration award include:

·         Corruption, fraud, or miscarriage in arbitration proceedings

·         Bias of the arbitrator chosen to be neutral

·         The arbitration exceeded the powers authorized

Can arbitration be required?

As mentioned above, a court of law may not impose mandatory arbitration.  However, the parties to a contract may stipulate the imposition of arbitration.  This comes up most often when signing a boilerplate contract.  Somewhere in a boilerplate contract will arise a subsection requiring mandatory arbitration or mediation.  These sections are customary in many contracts and are a way for corporations and other entities to settle legal matters out of court.  The policy behind this is not only financial but also based on public perception.

Where matters that arise in front of a court of law are not only publicized in the media and open to the public, they are also part of the public record and accessible to all.  Arbitration, on the other hand is a private matter and the negotiations involved, and the results, are not a matter of public record and often take place in private.

Are arbitration clauses enforceable?

Current Supreme Court decisions have solidified the enforceability of mandatory arbitration clauses.  Specifically in Buckeye Check Cashing, Inc. v. Cardegna the Supreme Court held that even if a contract is found to be completely void on its face, the mandatory arbitration clause will stand.  This is a prime example of how the judicial system favors arbitration.