What is an arbitration agreement?

An arbitration agreement is typically a clause in a larger contract in which you agree to settle any dispute with your counterpart outside of the courts through arbitration cases. Before the arbitration process can start, all parties must agree to arbitrate the dispute. The agreement is usually signed at the beginning of any business relationship because it's faster than litigating a court case. Use our free legal help tool below to receive more information about arbitration agreements.

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Jeffrey Johnson is a legal writer with a focus on personal injury. He has worked on personal injury and sovereign immunity litigation in addition to experience in family, estate, and criminal law. He earned a J.D. from the University of Baltimore and has worked in legal offices and non-profits in Maryland, Texas, and North Carolina. He has also earned an MFA in screenwriting from Chapman Univer...

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Written by Jeffrey Johnson
Insurance Lawyer Jeffrey Johnson

UPDATED: Jul 15, 2021

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If you’ve been wondering what does an arbitration agreement mean and why do companies use arbitration, we got you covered. It is a written contract in which two or more parties agree to settle a dispute outside of the courts. The agreement is ordinarily a clause in a larger contract. The dispute may be about the performance of specific contracts, a claim of unfair or illegal treatment in the workplace, a faulty product, among other various issues. People are free to agree to use arbitration concerning anything that they could otherwise resolve through legal proceedings, and there are arbitration guidelines to follow.

The agreement can be as simple as a provision in a contract stating that by signing that contract you are agreeing to arbitration in the case of any future disputes. For example, a business owner can ensure that potential dispute costs remain low by requiring anyone doing business with them to sign an agreement to arbitrate instead of litigate–to settle the matter out of court. In the case of more complicated business matters, mandatory arbitration clauses may be necessary.

If you need further legal help and want to know more about arbitrations, an arbitrator, and more essentials like arbitrator fees, just enter your ZIP code below.

What does an arbitration provision look like?

An arbitration provision in contracts might look like this:

“Upon written request of either Buyer or Seller, any controversy or claim between or among the parties hereto including but not limited to those arising out of or relating to the Sale, any of the sale documents, or any related agreements or instruments executed in connection with the sale, including any claim based on or arising from an alleged tort, shall be determined by binding arbitration in accordance with the Federal Arbitration Act (or if not applicable, the applicable state law), the Commercial Arbitration Rules of the American Arbitration Association, and the “Special Rules” set forth below unless both Lender and Borrower, in their respective sole discretion, agree in writing to mediate the dispute prior to submitting to binding arbitration. In the event of any inconsistency, the Special Rules shall control. Judgment upon any arbitration award may be entered in any court having jurisdiction. Any party to this Agreement may bring an action, including a summary or expedited proceeding, to compel arbitration of any controversy or claim to which this agreement applies in any court having jurisdiction over such action. The party that requests arbitration has the burden to initiate the arbitration proceedings pursuant to and by complying with the Commercial Arbitration Rules of the American Arbitration Association and shall pay all associated administrative and filing fees.”

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What are the benefits of signing an arbitration agreement?

  • Arbitrations are usually faster, inexpensive, and brief
  • Arbitrations are confidential, so you will not have to testify publicly
  • You can choose who will decide your legal disputes (e.g a specialized decision-maker with technical knowledge)
  • Certain employers will not hire you if you don’t sign an employment arbitration agreement.

If you need help drafting an arbitration agreement or understanding one that has been handed to you, you should contact an arbitration lawyer for help. When looking for attorney representation, at an arbitration firm, you can find an attorney with experience in various types of litigation, ICC arbitration, and more.

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