By Entrepreneur Staff

Arbitration Definition:

A formal dispute resolution process that's legally binding on the parties

The difference between arbitration and a lawsuit is primarily one of formality. For example, in arbitration, the formal rules of evidence don't apply. Each side can go on and on with narrative discussions, drawings and charts, and the arbitrator will take in all of it and make a decision. There are no juries in arbitration. Instead, usually one to three people specially trained in the subject matter of the arbitration hear the case. Arbitrations are heard much sooner than lawsuits can be scheduled. This can be either good or bad, depending on which side you're on.

Unless specified as such in a contract's arbitration clause, arbitrations are not final and binding. Either party can decide that they don't like the outcome. Once an arbitration award is made and a binding clause is in the contract, a court will make the arbitration award an enforceable judgment.

More From Legal Issues

Fair Labor Standards Act

A federal law enforcing minimum standards that employers must abide by when hiring employees

Family Medical Leave Act (FMLA)

The 1993 law that entitles a covered employee to take up to 12 weeks of leave in a 12-month period for the birth or adoption of a child or the serious health condition of the employee or the employee's child, spouse or parent


A legal document between parties that clearly spells out just what is expected and required of each party

Americans With Disabilities Act (ADA)

A federal law enacted in 1990 that makes it illegal for employers with 15 or more employees to refuse to hire qualified people with disabilities if making "reasonable accommodations" would enable the person to carry out the duties of the job