Arbitration stands in sharp contrast to litigation. A trial is a public event in which a publicly appointed judge renders a judgment by virtue of the authority of the state.” Financed through taxation, the civil justice system derives its authority over civil disputes from the state’s power to govern. The judicial branch definitively applies coercive state power to issue judgment in a visible, unbiased, accountable, and rationalized manner.” Selected through a process based on public assent and indirect public participation, judges are public agents whose decisions are official acts.” The civil judicial system operates through open hearings, creates public records, and publishes reasoned decisions that explain the bases of judgments. Because their judgments and often the reasons for those decisions are part of a public record, judges are accountable to the public, to higher courts, and to Congress, which may amend court rulings through legislation. For these reasons, “[p]ublic justice is public in the most obvious sense.’

Arbitration is a method of resolving disputes by voluntarily deferring to the judgment of third parties who have been engaged by the disputants.’ Arbitration is thus a substitute, or alternative, for formal, public adjudication.’ In contrast to the public nature of litigation, the defining characteristic of arbitration is that it is a private system. Arbitration does not depend upon and is not authorized by state power. Arbitrators receive their authority to render a binding decision from the agreement of the parties to abide by that decision, rather than from state authority. Arbitrators are not officials of the state, but are individuals acting in a private capacity who are selected by the parties, commonly because of experience in a particular industry or knowledge of the subject at issue. They work within a privately financed system and are accountable only to the parties.

Arbitration is private in a second sense; arbitration and its outcomes are generally confidential. Members of the public may not attend the hearings, which are open only to the parties and their representatives. The forum does not create a public record of filings, of the hearing, or of the award. In general, the awards are simple statements of the disposition of the claims that do not provide the reason for the award or an explanation of the grounds supporting it.’ An arbitration award is virtually final because, although recourse to the courts is nominally available under the FAA, the statute limits the grounds for setting aside the arbitral award to egregious errors.

Litigation occurs within a unified, hierarchical judicial system that uses past judgments to govern future cases heard by different courts. Under the doctrine of stare decisis, courts do not lightly reverse prior decisions or interpretive rules. This system allows an appellate court to constrain the power of the trial court by reviewing the legal bases of decisions. In contrast, arbitration occurs as a unique, isolated event that is not subject to review. As a result, arbitrators neither create nor apply precedent.

Source: Geraldine Szott Moohr. Arbitration and the Goals of Employment Discrimination Law. 56 Wash. & Lee L. Rev. 395, 401-403 1999.