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Business Arbitration Agreements

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What Is an Arbitration Agreement in a Contract?

Arbitration Agreements are an alternative means, besides using the court system, of settling any disputes arising from a contract between two parties. A number of things about this type of resolution process make it different from settling a matter in court:

  • It is less formal – While there are complex rules that guide a lawsuit and courtroom procedure, an arbitration can skip all of these aspects if the parties agree to do so
  • It is less time-consuming – Arbitration tends to resolve disputes a lot quicker than litigation since traditional legal procedures need not apply
  • There is greater privacy – Unlike litigation in a court of law, arbitration does not require a public record of the dispute be created
  • It is less expense – Since arbitration is a less formal and quicker process than litigation, not as much money needs to be put into the process by the parties.
  • The possibility of using a specialized arbitrator – The parties have the option of selecting a specific expert in the area of the dispute to be the arbitrator
  • Arbitration allows sustaining of business relationships – Arbitration does not necessarily create the negative adverse party system that tends to flourish in litigation, so the parties in dispute are able to continue doing business with each other even during the arbitration
  • No expensive appeals process – The decision at the end of the arbitration process is generally cannot be appealed, so the decision may be considered final

What Should an Arbitration Agreement Cover?

In order for an arbitration agreement to provide a quicker and less costly recourse than litigation in a courtroom, the parties to the contract will want to lay out a set of procedures for arbitration within the agreement, which should include the following:

  • What kind of disputes will be resolved by arbitration?  Will it be all disputes, or will certain disputes still be taken to court?
  • The detailed procedures that govern the arbitration process, including where the arbitration will be held, how the arbitrator will be selected, how the cost of arbitration will shared, and other procedures for governing the process
  • Any limits on damages that can be rewarded

Should I Consult an Attorney when Negotiating an Arbitration Agreement?

Crafting an enforceable and effective arbitration agreement that looks out for your interests can be a complex process. You may want to consult an attorney who has experience with contract drafting and review. Your business attorney will see that your interests are represented in the agreement, and also make sure it has all the legal formalities to make it a legally-binding agreement.

Photo of page author Jose Rivera

, LegalMatch Legal Writer

Last Modified: 05-17-2018 11:21 PM PDT

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