Arbitration is an alternative dispute resolution process ending in a binding legal decision. Parties are often attracted to the promise of faster, private, more cost-effective dispute resolution. Although arbitration may not be suitable for every type of claim, it can be very effective for many. However, finding a quality arbitration agreement example is just part of the process: you’ll also need to ensure that it complies with applicable state and federal laws.
Here’s an overview of arbitration agreements, with examples.
What is in an arbitration agreement?
When parties agree to resolve disputes through arbitration—typically by signing an arbitration agreement—they’re waiving their right to bring a lawsuit against the other party, should a claim arise. Despite this significant waiver, they’re often only a few sentences long, especially if the agreement is encompassed in a broader contract.
Arbitration agreements can be found in many types of contracts, including employment contracts, prenuptial/postnuptial agreements, publishing and media contracts, and more. However, they can also be a standalone agreement. Depending on its purpose and the type of disputes which may arise, a separate agreement may be more appropriate than including it in a broader contract.
Arbitration clauses typically stipulate that any disputes arising under the broader contract—or in regard to a specific situation—will be resolved through binding arbitration. They often appear at the end of a broader contract and may be listed as “arbitration” or “dispute resolution.” Some employers put them in employee handbooks.
The arbitration agreement can be more detailed. Your agreement may stipulate certain conditions, rules, or procedures will be followed during dispute resolution. For example, you can specify whether you want one arbitrator or a panel of them, how they will be chosen, and which rules of procedure will apply. You may also agree to which disputes will be resolved through arbitration, if court may be a better venue for certain types of claims.
Because arbitration agreements are usually entered into before parties experience a dispute, it’s important to remember that a broad arbitration agreement may not favor your cause. Both parties should be aware of the potential consequences.
Sample arbitration clauses and sample mandatory arbitration clauses
There are plenty of sample arbitration clauses available online—but be aware that generic clauses and templates may not be legally enforceable in your state. That can leave you open to significant risk, especially if you’re hoping to avoid a long and costly lawsuit.
So, what’s the difference between mandatory arbitration clauses and regular arbitration clauses? Often, it boils down to whether there’s an imbalance of power. When it comes to mandatory arbitration, employees and consumers may be put in a “take it or leave it” position: either they agree to arbitration or the other party will rescind their job offer or service. These clauses have come under increased scrutiny over the last decade, and some states, like California, have tried to ban the practice. It’s crucial that you perform the necessary, state-specific research if you’re including an arbitration clause.
A sample mandatory arbitration provision might include (but not be limited to) language such as:
“Mandatory Arbitration. In the event of any dispute or controversy arising out of, relating to, or resulting from an employee’s employment with {{company}}, all such disputes must be settled by binding arbitration to the extent permitted by law, as set forth in the {{Arbitration_Agreement}} (the “Agreement”). The Agreement specifically provides for arbitration of all claims against {{company}} and its employees, officers, and directors in their capacity as such, to the extent permitted by law, and waives any right to a trial by jury.”
How do you write an arbitration agreement?
Writing an arbitration agreement may look relatively simple, but it’s important to get the language just right. Avoid copying and pasting sample arbitration clauses into your contracts. If your arbitration agreement fails to comply with all applicable laws, it may not be enforceable. That leaves you or your company open to lawsuits, which are often more expensive and lengthy than arbitration.
Of course, hiring a lawyer to draft an arbitration agreement from scratch can also be quite expensive. That’s why SixFifty’s Employment Agreements are the ideal middle ground: we’ve paired real legal expertise with technology to automatically generate customized, legally compliant arbitration agreements. No need to rely on arbitration agreement examples. Just answer a few questions about your agreement and download the generated document that’s been customized for your unique needs.
Ready to create your own? Schedule a free product demo today!
