What is arbitration?
Arbitration is a private process in which the parties to a dispute agree to have one or more neutral arbitrators decide it instead of a judge or jury. The arbitrator hears evidence and arguments and issues a decision called an award, which is usually final and binding. Unlike mediation, where a neutral helps the parties reach their own settlement, arbitration ends with a decision the parties must follow.
In the United States, the Federal Arbitration Act (FAA) of 1925 says that a written agreement to arbitrate in a contract involving interstate commerce is "valid, irrevocable, and enforceable," except on grounds that would undo any contract, such as fraud. Courts read it broadly, and it overrides state laws that single out arbitration for hostile treatment. It sits beside ordinary civil procedure as the main alternative way to resolve disputes.
- Federal law
- Federal Arbitration Act (1925)
- Common providers
- American Arbitration Association, JAMS
- Review by courts
- Very limited
- Cross-border awards
- New York Convention
An arbitration award is hard to undo. Courts can't overturn it just because the arbitrator got the facts or the law wrong.
How arbitration works
- The agreement: Arbitration starts with a clause in a contract or a separate agreement after a dispute arises. The clause usually names the provider, its rules, the place and the number of arbitrators.
- The hearing: Arbitrators are chosen under the agreement or the provider's rules. There is usually less pretrial discovery than in court, and hearings are private.
- The award: The arbitrator issues an award, which a court can confirm so that it can be enforced like a judgment.
Consumer and employment arbitration
The Supreme Court has upheld arbitration clauses that require people to bring claims one at a time. In AT&T Mobility v. Concepcion (2011), it held that the FAA preempts a state rule treating class action waivers in consumer contracts as unconscionable, and in Epic Systems Corp. v. Lewis (2018) it upheld class waivers in employment agreements. Congress carved out one exception in the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2022, which lets people bring those claims in court despite a predispute arbitration agreement.
Challenging an award
Section 10 of the FAA lets a court vacate an award only on narrow grounds: corruption or fraud, evident partiality of an arbitrator, serious misconduct such as refusing to hear relevant evidence, or arbitrators exceeding their powers. A motion to vacate must generally be served within three months after the award is filed or delivered. In Hall Street Associates v. Mattel (2008), the Supreme Court held that parties cannot contract for broader court review under the FAA. Once confirmed, an award has a preclusive effect much like a court judgment, a principle related to res judicata.
International arbitration and Korea
The 1958 New York Convention requires courts in more than 170 member countries to recognize and enforce foreign arbitral awards, with only limited exceptions. The United States joined in 1970 and Korea in 1973. That is why arbitration is the usual choice in international contracts: a court judgment can be hard to enforce abroad, while an award is enforceable almost everywhere.
Korea's Arbitration Act, first passed in 1966 and rewritten in 1999 on the UNCITRAL Model Law, gives an award the same effect as a final court judgment, and the Korean Commercial Arbitration Board handles most cases. A Korean paper on Commercial Arbitration in China: Procedures, Arbitration Agreements and Awards, Court Intervention and the Ban on Ad Hoc Arbitration, and How Korean Companies Should Respond explains how China's system works and how to draft clauses for trade with China. Related Korean papers cover contract breach and damages in trade in Breach of Contract and Damages in Korean and International Sales Law: Delay, Impossibility, Defective Performance and Anticipatory Breach, intellectual property disputes in Responding to Patent Troll Demand Letters, Font Copyright Claims and Trademark Infringement: Four IP Disputes Small Korean Companies Face, and everyday dispute resolution bodies in Intestate Succession in Korea: Order of Heirs, Statutory Shares and Representation, Plus Key Everyday Law Terms and Dispute Bodies.
| United States | Korea | |
|---|---|---|
| Main law | Federal Arbitration Act and state law | Arbitration Act |
| Main providers | AAA, JAMS | Korean Commercial Arbitration Board |
| Consumer clauses | Generally enforceable, including class waivers | Reviewed under the Standardized Contracts Act |
| Challenging an award | Motion to vacate within 3 months | Action to set aside within 3 months |
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Criticism and debate
Supporters say arbitration is faster, cheaper and more private than court, and lets parties pick decision-makers with expertise. Critics argue that mandatory clauses in take-it-or-leave-it contracts strip consumers and workers of their day in court and of class actions, and that repeat business clients may enjoy an advantage. Some businesses have faced the opposite problem of mass arbitration, when thousands of individual claims are filed at once and the company must pay the fees for each. Bills to ban predispute arbitration clauses in consumer and employment contracts have been introduced in Congress but have not passed.
Before you sign, search the contract for the word "arbitration." Agreeing to it usually means giving up a jury trial and class actions.
- Is arbitration binding?
- Usually yes. Unless the agreement says it is nonbinding, the award is final, and courts can set it aside only on narrow grounds such as fraud or arbitrator bias.
- What is the difference between arbitration and mediation?
- A mediator helps the parties reach their own agreement and cannot impose one, while an arbitrator decides the dispute and issues a binding award.
- Can I refuse an arbitration clause?
- You can decline the contract, and some clauses offer an opt-out period, but once you agree, courts will usually enforce the clause under the Federal Arbitration Act.
References and official sources
- Arbitration. Cornell Law School Legal Information Institute
- 9 U.S. Code Chapter 1, General Provisions. Cornell Law School Legal Information Institute
- New York Convention. New York Convention
- 중재법. 국가법령정보센터