Black's Law Dictionary Definition

A process of dispute resolution in which a neutral third party (arbitrator) renders decision after a hearing at which both parties have an opportunity to be heard. Where arbitration is voluntary, the disputing parties select the arbitrator who has the power to render a binding decision.

See also: Mediation

Arbitration is a form of Alternative Dispute Resolution (ADR). This method allows disputes to be settled outside of court. There are three main types of arbitration that are commonly used: compulsory, final offer, and voluntary. Arbitration is usually quicker and cheaper than court judgments.


To both parties:

  • Arbitration is fast. It takes only about 120 days until a dispute is settled
  • Arbitration presents a more informal setting
  • Arbitration is binding
  • Arbitration may grant awards
  • Arbitration involves attorneys that focus in legal advice.

To the consumer:

  • If the contractor doesn’t comply, his/her license may be suspended/revoked.

To the contractor:

  • Unless the contractor fails to comply, the complaint won’t be disclosed to the public.
  • The contractor’s license will not be suspended/revoked unless he/she does not comply with the arbitrator’s award.

Types of Arbitration

Compulsory Arbitration

This type of arbitration occurs when one of the parties' consent is enforced due to statutory reasons. Usually this occurs when a company and a public employee have labor disputes.

Final Offer Arbitration

This type of arbitration occurs when the arbitrator must choose one side or the other's final offer that was submitted before reviewing the issue. Compromise is not permitted; the arbitrator must choose the offer that is closest to the correct outcome.

Voluntary Arbitration

This type of arbitration occurs when both parties agree to having an arbitrator to come to a compromise.


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The material provided is intended for informational purposes only. It is not to be considered legal advice and not to be construed as legal representation.