Arbitration is a private dispute resolution process in which an arbitrator or arbitrators consider the evidence and the written and oral arguments submitted by the parties to the dispute and make a ruling to resolve the dispute—much like a judge or jury would do. The documents and evidence filed by the parties and any hearings in the arbitration process are private (limited to the parties and possibly insurance representatives), which is different from the public nature of court proceedings. And unlike court proceedings, the decision of the arbitrator or arbitrators is generally final, and there is little opportunity for appeal to another arbitrator or judge.
Many employers require employees to agree to resolve any employment-related disputes in arbitration rather than in court. Employers generally secure arbitration agreements from employees in written employment agreements (if the employee has a written employment agreement) and in employee handbooks—including signed acknowledgements by the employee of receipt of the handbook and the employee’s agreement to abide by it.
The Federal Arbitration Act (FAA) is a federal law (statute) that governs most arbitration agreements. The FAA applies to an arbitration agreement in any contract involving interstate commerce—to the full extent of the Commerce Clause of the United States Constitution. But state law principles of contract formation are applied to determine whether the parties agreed to an arbitration provision that is subject to the FAA. And most states have arbitration laws (statutes) that may apply when the FAA does not apply—or may apply to the extent the state arbitration law is not preempted (superseded) by the federal arbitration law.
The FAA may be enforced by both state and federal courts. An arbitration agreement is not required to be signed to be enforceable under the FAA.