Define: Compulsory Arbitration

Compulsory Arbitration
Compulsory Arbitration
Quick Summary of Compulsory Arbitration

Compulsory arbitration, also known as mandatory arbitration, refers to a process where parties to a dispute are required by law or contract to resolve their disagreements through arbitration rather than litigation in court. In compulsory arbitration, both parties are bound to participate in the arbitration process and to abide by the arbitrator’s decision, which serves as a legally binding resolution of the dispute. This process is often used in commercial contracts, employment agreements, consumer agreements, and certain areas of law, such as labor disputes and securities arbitration. Compulsory arbitration can offer benefits such as faster resolution, reduced costs, and greater privacy compared to traditional court proceedings. However, it can also limit parties’ rights to access the court system and to appeal decisions, and there may be concerns about fairness, neutrality, and enforceability of arbitration awards. The use of compulsory arbitration is subject to legal requirements and limitations, and its enforceability may depend on factors such as the validity of the arbitration agreement, procedural fairness, and compliance with applicable laws and regulations.

What is the dictionary definition of Compulsory Arbitration?
Dictionary Definition of Compulsory Arbitration

A legal and binding arbitration between labour and management by a neutral third party that has been mandated by the government. Compulsory arbitration is used when collective bargaining and other negotiation methods have failed to settle outstanding issues without either side resorting to extreme measures such as strikes or terminations.

Full Definition Of Compulsory Arbitration

Compulsory arbitration refers to a legal process in which parties are required to submit their disputes to an arbitrator or a panel of arbitrators for resolution rather than going to court. This process is often mandated by law or by contractual agreement, and the decision of the arbitrator is typically binding on the parties involved. Compulsory arbitration is often used in labour disputes, consumer disputes, and other types of legal conflicts.

Compulsory arbitration, or mandatory arbitration, is a dispute resolution process in which parties are required by law or contractual obligation to resolve their disputes through arbitration rather than through litigation in court. This mechanism is increasingly utilised across various jurisdictions and industries, including employment, consumer contracts, and commercial agreements. The following overview will explore the nature of compulsory arbitration, its legal foundations, procedural aspects, advantages, disadvantages, and position within the broader legal framework of dispute resolution.

Legal Foundations of Compulsory Arbitration

Statutory Basis

Compulsory arbitration can be mandated by statute. Various jurisdictions may have specific laws that require certain disputes to be resolved through arbitration. For instance, the Arbitration Act 1996 governs arbitration proceedings in England, Wales, and Northern Ireland, providing a comprehensive legal framework that upholds the enforceability of arbitration agreements and awards.

Contractual Obligations

Many instances of compulsory arbitration arise from contractual agreements between parties. These arbitration clauses are typically included in contracts to preclude the need for litigation. The enforceability of these clauses is generally upheld by courts, provided they meet the necessary legal requirements, such as fairness and clarity.

Judicial Precedents

The courts play a crucial role in shaping the landscape of compulsory arbitration by interpreting statutes and contractual clauses. Judicial precedents provide guidelines on the enforceability and scope of arbitration agreements, often addressing issues such as unconscionability, public policy, and procedural fairness.

Procedural Aspects of Compulsory Arbitration

Initiation of Arbitration

Arbitration proceedings commence when a party to the arbitration agreement submits a notice of arbitration to the other party, outlining the nature of the dispute and the relief sought. This step is crucial, as it sets the arbitration process in motion and establishes the arbitral tribunal’s jurisdiction.

Appointment of Arbitrators

The arbitration agreement typically specifies the method of selecting arbitrators. Parties may agree on a single arbitrator or a panel, often with each party appointing one arbitrator and the appointed arbitrators selecting a presiding arbitrator. The Arbitration Act of 1996 provides mechanisms for appointing arbitrators in cases where parties fail to agree.

Conduct of Proceedings

Arbitration proceedings are generally less formal than court litigation. The arbitral tribunal can determine procedural rules, subject to the parties’ agreement and statutory provisions. This flexibility allows for a more streamlined and efficient resolution process. Key procedural steps include submitting statements of claim and defence, discovery, hearings, and the presentation of evidence.

Arbitral Awards

The arbitral tribunal issues a final award after considering the evidence and arguments presented by the parties. The award is binding and enforceable, with limited grounds for challenge or appeal, primarily related to procedural irregularities, bias, or violations of public policy.

Advantages of Compulsory Arbitration

Efficiency and Cost-Effectiveness

Arbitration is generally faster and less costly than litigation. The streamlined procedures and reduced formality contribute to quicker resolutions, which is particularly beneficial in commercial disputes where time is of the essence.

The Expertise of Arbitrators

Parties can select arbitrators with specific expertise relevant to the dispute, ensuring that knowledgeable professionals address complex technical issues. This expertise can lead to more accurate and informed decisions.


Arbitration proceedings are private, and the details of the dispute and the award are typically kept confidential. This is advantageous for parties who wish to protect sensitive information or avoid public scrutiny.


The procedural flexibility of arbitration allows parties to tailor the process to their specific needs. They can agree on various aspects, such as the location, language, and rules of arbitration, which can enhance the process’s efficiency and suitability.

Disadvantages of Compulsory Arbitration

Limited Appeal Rights

The grounds for challenging an arbitral award are limited, which can be a disadvantage if a party believes the award is unjust. This lack of appellate review can be seen as restricting the ability to rectify errors or injustices.

Perceived Bias

There is a concern that arbitrators, particularly in consumer and employment disputes, may be biassed in favour of the party that frequently uses arbitration, such as employers or large corporations. This perception of bias can undermine the fairness and integrity of the arbitration process.


While arbitration is generally cheaper than litigation, it can still be costly, especially in complex cases requiring expert witnesses or extended hearings. The arbitrators’ fees, which can be substantial, are borne by the parties.

Unequal Bargaining Power

In some contexts, particularly in employment and consumer contracts, there is an inherent power imbalance between the parties. Compulsory arbitration clauses imposed by stronger parties can disadvantage weaker parties with limited negotiation power.

Legal Framework and Enforcement

Arbitration Act 1996

The Arbitration Act 1996 is the cornerstone of the legal framework for arbitration in England, Wales, and Northern Ireland. It outlines the general principles of arbitration, including the fair resolution of disputes, party autonomy, and minimal court intervention. The Act also sets out procedural rules, the powers of arbitrators, and the grounds for challenging arbitral awards.

New York Convention

The Convention on the Recognition and Enforcement of Foreign Arbitral Awards, commonly known as the New York Convention, plays a critical role in enforcing arbitral awards internationally. The Convention requires courts of contracting states to recognise and enforce arbitral awards made in other contracting states, subject to certain limited exceptions.

Court Involvement

While arbitration is intended to be an alternative to court litigation, courts still play an essential role in supporting the arbitration process. Courts can enforce arbitration agreements, appoint arbitrators, and stay litigation proceedings pending arbitration. They also have jurisdiction to review and enforce arbitral awards, ensuring compliance with legal standards.

Compulsory Arbitration in Specific Contexts

Employment Disputes

Compulsory arbitration is common in employment contracts, where employers include arbitration clauses to manage employee disputes. While this can provide a quicker resolution process, it has been criticised for potentially limiting employees’ access to justice and favouring employers.

Consumer Contracts

In consumer contracts, arbitration clauses are often included in standard-form agreements, such as those for credit cards, loans, and telecommunications services. These clauses are controversial as they may restrict consumers’ rights to pursue claims in court, particularly in cases involving small individual claims that are more efficiently handled through class actions.

Commercial Disputes

Compulsory arbitration is widely accepted and favoured in commercial contracts for its efficiency and expertise. Businesses often prefer arbitration to resolve cross-border disputes due to the enforceability of awards under the New York Convention and the neutrality of arbitration forums.

Reforms and Criticisms

Calls for Reform

There have been calls for reform to address the perceived inequities in compulsory arbitration, particularly in the employment and consumer sectors. Proposed reforms include ensuring greater transparency, enhancing procedural fairness, and providing robust mechanisms for challenging arbitral awards.


Critics argue that compulsory arbitration can undermine public confidence in the justice system by creating a parallel private justice system. Concerns about bias, limited recourse, and the potential for unequal bargaining power have led to debates about the appropriateness of mandatory arbitration in certain contexts.

Alternative Dispute Resolution (ADR)

Compulsory arbitration is part of the broader ADR landscape, which includes mediation, negotiation, and conciliation. ADR is promoted to reduce the burden on the courts and provide more amicable and tailored dispute resolution options. The choice between different ADR methods depends on the nature of the dispute, the relationship between parties, and their preferences.


Compulsory arbitration is a significant mechanism for dispute resolution, offering advantages such as efficiency, expertise, and confidentiality. However, it also poses challenges related to fairness, cost, and potential bias. The legal framework governing compulsory arbitration, including statutory provisions, judicial precedents, and international conventions, ensures its enforceability and procedural integrity. Ongoing debates and calls for reform highlight the need to balance the benefits of arbitration with the protection of parties’ rights and the promotion of justice. As compulsory arbitration continues to evolve, it remains an essential component of the legal landscape, particularly in commercial disputes and increasingly in other areas such as employment and consumer contracts.

Compulsory Arbitration FAQ'S

Compulsory arbitration is a legal process in which parties involved in a dispute are required to submit their case to an arbitrator or a panel of arbitrators for a binding decision, instead of going to court.

Compulsory arbitration is typically used in specific situations where the law mandates it, such as in labour disputes, certain consumer contracts, or in some jurisdictions for certain types of civil cases.

Compulsory arbitration can provide a quicker and more cost-effective resolution to disputes compared to traditional litigation. It also allows parties to have their case heard by an impartial arbitrator who has expertise in the relevant area of law.

In some cases, parties may have the option to opt out of compulsory arbitration if both parties agree to pursue alternative dispute resolution methods, such as mediation or negotiation. However, this depends on the specific laws and regulations governing the dispute.

The selection of an arbitrator in compulsory arbitration can vary depending on the jurisdiction and the specific rules governing the process. In some cases, the parties may have the opportunity to mutually agree on an arbitrator, while in others, the arbitrator may be appointed by a designated authority.

Yes, in compulsory arbitration, the decision of the arbitrator is typically binding on the parties involved. This means that they are legally obligated to abide by the arbitrator’s decision and cannot appeal it in court.

Compulsory arbitration may have limitations, depending on the jurisdiction and the specific laws governing the dispute. For example, certain types of disputes, such as those involving constitutional rights or criminal matters, may not be subject to compulsory arbitration.

Yes, parties involved in compulsory arbitration have the right to legal representation. They can hire attorneys to advocate on their behalf and present their case before the arbitrator.

In most cases, the decision of the arbitrator in compulsory arbitration cannot be appealed in court. However, there may be limited grounds for challenging the decision, such as if there was a procedural error or if the arbitrator exhibited bias or misconduct.

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This site contains general legal information but does not constitute professional legal advice for your particular situation. Persuing this glossary does not create an attorney-client or legal adviser relationship. If you have specific questions, please consult a qualified attorney licensed in your jurisdiction.

This glossary post was last updated: 14th June 2024.

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