Arbitration is the hearing of a dispute by an impartial third person or persons (chosen by the parties), whose award/decision the parties have agreed to accept.
In the United States, arbitration pursuant to contracts involving interstate commerce is governed by the Federal Arbitration Act of 1925. The FAA requires courts to dismiss or stay a case when a party compels arbitration pursuant to a contract, unless the contract is invalid for reasons generally applicable to contracts, such as fraud, duress, or unconscionability (Doctor's Associates, Inc. v. Casarotto).
In consumer and employment contracts, arbitration agreements often include class-action waivers, requiring parties to seek relief on an individual basis only. In April 2011, the U.S. Supreme Court ruled that states like California could not refuse to enforce an agreement to arbitrate with a class-action waiver on the grounds that it would deny class relief (AT&T Mobility v. Concepcion).
The process is overseen by an arbitrator, who is a private, disinterested person chosen by the parties to hear evidence concerning the dispute and to make an award based on the evidence.