Arbitration is the most common alternative dispute resolution method where disputing parties submit their case to a third party for resolution. The neutral third party is called the arbitrator or the arbitral tribunal. The decision of the arbitrator is an “award.”
Arbitration as a means of dispute resolution has a significant role in labor disputes. There are two kinds of arbitration when it comes to labor disputes:
Interest arbitration: suggests solutions when there is disagreement about the terms to be included in a new contract.
Grievance arbitration: resolves disputes over interpretation of collective bargaining agreements.
Arbitrations generally arise from contracts where parties mutually agree that any dispute arising from the agreement will be resolved through arbitration. Earlier, agreements to arbitrate were not enforceable. However the Industrial Revolution promoted arbitration as a faster and cheaper alternative to the regular judicial process. Consequently, the New York Arbitration Act of 1920 was enacted. This was followed by the United States Arbitration Act of 1925, also called the Federal Arbitration Act (FAA). The acts made arbitration clauses in agreements valid and enforceable unless the entire agreement was vitiated by fraud or was unconscionable. All disputes that are not specifically exempt by law can be submitted to arbitration. For example; criminal proceedings are exempt from arbitration. This is because although arbitral awards are legal and binding in nature, they are not void from the requirements of law.
Arbitration is most commonly used for the resolution of commercial disputes, especially international commercial transactions. In consumer and employment disputes, arbitration is generally viewed as a measure imposed through contracts and is not chosen voluntarily because consumers and employees perceive it as a method of denying right to access courts.
Although generally, arbitration is a binding procedure, there is also non binding arbitration. Non-binding arbitration is quite similar to mediation (where a third party suggests solution to the dispute, but cannot enforce it) in that the award is not binding on the parties.