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What Is Compulsory Arbitration?

By Theresa Miles
Updated May 17, 2024
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Compulsory arbitration is a system of alternative dispute resolution that is mandated by law in the public interest or by contract between parties. Under this system, the parties in a dispute must submit the matter to an independent third-party arbitrator for resolution, rather than take the matter to court. Ordinarily, compulsory arbitration is non-binding, and either party can disregard the arbitrator's decision and take the matter to court. In some instances, the law makes compulsory arbitration binding, and both parties must abide by the arbitrator's decision without recourse to the court system.

Arbitration is a quicker, more cost-effective alternative to the judicial system. In many jurisdictions, the court system is overburdened, and suits can take years to reach a conclusion. Alternative dispute resolution options, like arbitration, give parties to a lawsuit a method to resolve the matter by using an independent third-party arbitrator who acts in lieu of a judge. This option resolves the matter in months, instead of years.

In business agreements, arbitration is usually an option that parties agree to upfront, in case there is a dispute under the contract in the future. The freedom to have a matter heard in court by a judge is a fundamental democratic right that is often guaranteed by a country's constitution. A person or entity can agree to waive this right, but it ordinarily cannot be taken away without cause.

There are certain exceptions to the right to have a dispute heard in court. A jurisdiction can determine that prolonged litigation is against the public interest in special circumstances and may require the use of arbitration to resolve disputes. Compulsory arbitration is often required by law in disputes between employees and employers, where a strike or lock-out would impact the public safety.

For example, the law in many jurisdictions requires police officers, medical professionals, transit workers and airplane pilots to submit their labor disputes to compulsory arbitration. A labor disruption in any of these areas would have a catastrophic impact on the public and the economy. One of the conditions of working in these industries is having to waive certain fundamental labor rights.

When compulsory arbitration is mandated by contract between parties, it is typically non-binding. If either party disagrees with the arbitrator's decision, the matter can be taken to court. Conversely, compulsory arbitration that is mandated by law in the public interest is often binding. It is the only option to resolve the matter, and the arbitrator's decision is final.

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