arbitration

arbitration, industrial, method of settling disputes between two parties by seeking and accepting the decision of a third party. Arbritration differs from mediation in that the arbritrator does not attempt to find a compromise acceptable to the two parties, but decides in favor of one party or the other and awards any damages if appropriate. Arbitration may be voluntarily agreed to by the parties, but it is increasingly mandatory in commercial consumer contracts and employment contracts, for example, as the method for settling disputes, and the decision is often binding on the parties, with limited recourse to appeal or for review of the decision. Arbitration clauses in consumer contracts may specify that the arbitrator base the decision on standard business practice or principles or other guidelines instead of the law, and often require the purchaser of a product or service to waive the right to sue or participate in a class action. In voluntary arbitration a formal agreement is usually made to abide by the decision. The members of organizations such as the American Arbitration Association, founded in 1926, help settle such disputes and the use of such an organization's members may be specified by a contract, but some such groups have been accused of favoring businesses (who typically pay the arbitrator's fees) over consumers.

Arbitration also has been used in employer-employee disputes, particularly those involving labor unions. Such arbitration may be compelled by the government, as in New Zealand (since 1894), Australia (since 1904), Canada (since 1907), Italy (since 1926), and Great Britain (since World War II). In other cases, it may be by voluntary agreement, as is often the case in the United States, where the government occasionally intervenes in the case of a strike affecting the public welfare (see Taft-Hartley Labor Act) by persuading the parties concerned to accept the decision handed down by the arbitrator. In the United States, as a result of a Supreme Court ruling in 2001, companies can insist that employment-related disputes (such as discrimination suits) go to arbitration rather than to court. Labor arbitration machinery in the United States has been set up at both federal and state levels in the form of mediation and arbitration boards.

See F. Elkouri, How Arbitration Works (1985); M. Bognanno, Labor Arbitration in America (1992).

In international arbitration, international disputes, usually between nations, are settled peacefully through a judicial process, generally through the use of a tribunal acting as a court of law. Such a tribunal may consist of an individual (e.g., an impartial head of state, the pope, the secretary-general of the United Nations), a neutral country, or an organization such as the Hague Tribunal. The parties to the dispute pick the arbitrating body themselves and are obligated to accept the terms of settlement. If the parties do not agree in advance to follow the decision reached by a third party, but merely agree to consider it, the process is termed conciliation (see mediation).

Arbitration was practiced by the Greek city-states, and in the Middle Ages high ecclesiastical authorities were called upon to settle controversies. With the development of the modern system of nation-states, however, arbitration was less frequently used until the 19th cent. when the settlement by arbitration of the famous Alabama claims case between the United States and Great Britain brought this practice back into general use. Great advances have been made since then, most notably in the establishment of a Permanent Court of Arbitration (the Hague Tribunal) by the Hague Conferences. Functions analogous to arbitration were performed by the Permanent Court of International Justice (see World Court) under the League of Nations and have now been transferred to its successor, the International Court of Justice. Today many treaties contain clauses providing for arbitration or conciliation of disputes; the most notable of these is the Charter of the United Nations (Article 33).

The Columbia Electronic Encyclopedia, 6th ed. Copyright © 2024, Columbia University Press. All rights reserved.

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