How do the parties initiate arbitration?
Arbitration can be either voluntary or mandatory.
Voluntary arbitrations begin when the parties voluntarily submit a dispute to arbitrators for determination.
Mandatory arbitration is when a statute or court procedure requires the parties to submit a matter to arbitration for dispute.
What is Voluntary Arbitration?
Voluntary arbitration, as the name indicates, means that the parties voluntarily agree to submit a dispute (or any dispute) to arbitration.
This is also known as arbitration at common law.
This is normally done through a formal, written agreement entered into between the parties.
Voluntary arbitration generally takes two forms:
- Pre-dispute Arbitration– A contract between parties may contain an arbitration clause. These agreements require that any dispute over the contract will be arbitrated.
- Example: Assume you enter into a contract to purchase a vehicle. The contract contains a clause stating that any legal disputes about the contract will be arbitrated. This is a pre-dispute arbitration clause.
- Post-dispute Arbitration– The parties may enter into an agreement after the dispute arises to resolve a dispute through arbitration.
- Note: Even if the contract has an arbitration provision that makes arbitration of any disputes mandatory, it is still voluntary arbitration. The reason is that the parties voluntarily entered into the contract.
Example: Now, continuing the above example between you and the car salesman, suppose the agreement does not contain an arbitration clause. If a dispute arises, you and the car salesman may enter into an agreement to submit the dispute to arbitration rather than litigate it.
What is Mandatory Arbitration?
Certain state and federal laws require parties to arbitrate specific types of disputes.
When a statute or court requires the parties to arbitrate a matter, this is known as mandatory arbitration.
This is common in some very technical areas of law, such as alleged violations of rules put forward by the Financial Industry Regulatory Authority (FINRA).
The requirement to arbitrate may be tied either to the type of dispute or the amount in controversy in the dispute.
When the law requires arbitration, there is also a procedure in place for the identification and hiring of certified arbitrators.
