What Is Arbitration? Your Guide to Law, Process, and Practical Realities in California and Under the FAA
Imagine you’ve signed a business contract, bought a consumer good, or started a new job. Later, a disagreement occurs—and instead of heading into a lengthy public court battle, you’re directed to arbitration. This alternative dispute resolution procedure may be unfamiliar, but is increasingly used to resolve real-world disputes quickly and privately, under both federal and California law.
Arbitration offers a legally binding, typically confidential process for settling matters without a judge or jury. Its rules and enforceability are governed by the Federal Arbitration Act (FAA), 9 U.S.C. § 1 et seq., and California’s Code of Civil Procedure, Cal. Civ. Proc. Code §§ 1280–1294.2.
How Does Arbitration Start?
Most arbitration originates with a contract clause requiring parties to use arbitration, rather than litigation, if a disagreement arises. Under both the FAA (9 U.S.C. § 2) and California law (Cal. Civ. Proc. Code § 1281), these agreements are enforceable and courts are required to honor them in nearly all cases.
When a dispute does arise, the parties work together to select a neutral arbitrator or an arbitration panel (Cal. Civ. Proc. Code § 1281.6; FAA, 9 U.S.C. § 5). This can be an industry expert, an attorney, or a retired judge—often chosen from rosters provided by arbitration organizations such as AAA or JAMS. If the parties cannot agree, the court steps in and appoints a qualified arbitrator.
A preliminary conference usually follows, setting out procedures, timelines, the scope of discovery (exchange of information), and fees. California’s procedural statutes (Cal. Civ. Proc. Code §§ 1282–1284.2) detail these steps. The FAA (9 U.S.C. § 5) gives arbitrators flexibility, allowing them to tailor the proceedings to the needs and schedule of the parties.
The Arbitration Hearing
Arbitration hearings resemble bench trials, but with greater privacy and informality. Both sides present evidence, call witnesses, and make arguments. California law (Cal. Civ. Proc. Code § 1282.2) ensures each party can tell their story, while the FAA (9 U.S.C. § 7) empowers arbitrators to subpoena witnesses and documents.
Hearings can range from a few hours to several days, depending on the complexity of the case. Afterward, the arbitrator issues a formal written award, as required by California law (Cal. Civ. Proc. Code § 1283.4) and the FAA (9 U.S.C. §§ 9, 13). The award is usually delivered within weeks, and its terms are binding.
Enforcing or Challenging an Arbitration Award
One major appeal of arbitration is its finality. Arbitration awards are enforceable in state and federal courts much like judicial decisions. However, both the FAA (9 U.S.C. § 10) and California law (Cal. Civ. Proc. Code § 1286.2) provide only narrow grounds for challenging an award—such as fraud, corruption, or clear misconduct. Most awards stand as written, and appeals are rare.
Costs, Timelines, and Payment
California has enacted additional fee rules (Cal. Civ. Proc. Code §§ 1281.97–1281.99), requiring parties to pay arbitration costs on strict deadlines and penalizing delay or nonpayment, sometimes sending the dispute back to court. Arbitration fees can be substantial, sometimes splitting several thousand dollars between the parties. The FAA is less specific about fees and deadlines, but federal courts may look to state law for guidance in enforcing payment obligations.
Where Is Arbitration Used Most?
Arbitration is increasingly common in:
Commercial contracts and business disputes
Employment agreements and workplace claims
Consumer transactions (e.g., cell phone, credit card, and product warranties; FAA, 9 U.S.C. § 2)
Construction contracts and real estate matters
Healthcare billing, insurance, and coverage disputes
Why Choose Arbitration—and When Might It Not Be Best?
Arbitration is chosen for speed, privacy, and expertise. Its confidentiality can be an advantage for sensitive business information, while the ability to select a specialized arbitrator promises a more informed review. Flexible scheduling makes it ideal for busy professionals.
However, costs can add up, discovery is often more limited than in court, and you generally cannot appeal a decision you believe is wrong (except in extreme cases). Parties should always review their contract’s arbitration clause and consult legal counsel before signing.
Frequently Asked Questions About Arbitration
Q: Will arbitration be faster than court?
A: Usually yes. Arbitrations are scheduled quickly and resolved in months rather than years.
Q: Can I appeal an arbitration award if I lose?
A: Very rarely. Both the FAA and California law limit appeals to cases of fraud, corruption, or serious procedural misconduct.
Q: Who pays the arbitration fees?
A: Generally, both parties share the cost, but contracts may specify otherwise. California law requires prompt payment and penalizes delay (Cal. Civ. Proc. Code §§ 1281.97–1281.99).
Q: Is the decision private?
A: Yes. Arbitration hearings and written awards are typically confidential, unless the parties or arbitrator decide otherwise.
Q: What law applies if there’s a conflict—California or federal?
A: The FAA governs most interstate and commercial matters, and will often preempt California law if there’s a conflict. However, California statutes apply to California disputes and supplement the FAA where possible.
Conclusion
Arbitration (guided by the FAA and California statutes) offers privacy, speed, and finality, but it’s important to understand both its advantages and limitations. Always read your contract’s arbitration provisions carefully, and consult a lawyer to protect your interests and ensure that you understand your rights under 9 U.S.C. § 1 et seq. and Cal. Civ. Proc. Code §§ 1280–1294.2.
