As businesses continue to expand their territories, many companies are turning to arbitration as a way to settle disputes. An arbitration agreement is a clause in a contract that requires the parties to settle disputes through arbitration, rather than litigation.
Arbitration is a type of alternative dispute resolution (ADR). Arbitration is less formal than court-based legal proceedings and relies on private adjudication by an impartial third party known as an arbitrator. The decision by the arbitrator is known as an “award”.
The goal of arbitration clauses is to provide efficient, fair, and practical dispute resolution while encouraging out-of-court settlements and easing the burden on the court system. Additionally, arbitration is private, unlike litigation, which is public.
Arbitration is typically a final, legally binding process that may impact your rights. It’s important to remember that the arbitrator does not provide legal advice or assistance in your dispute. Although it is not required, parties can consult with an attorney before and during an arbitration hearing.
Arbitration clauses are often enforced according to contract law principles. However, some jurisdictions hold them unenforceable if there has been any fraud, overreaching, or the absence of mutuality with terms such as “any,” “all,” or “every” (as opposed to “some”) in the arbitration clause.
Is The Arbitration Clause In My Contract Enforceable?
The United States Arbitration Act, more commonly referred to as the Federal Arbitration Act or FAA, was passed to ensure federal policy favoring arbitration agreements.
This federal act outlines when and where such agreements can be enforced – e.g., disputes between companies. However, with regard to individual contracts, most states have their own rules governing whether an arbitration agreement is valid and/or enforceable.
Most state laws require that both parties agree to arbitrate any future disputes arising out of the contract in order for the agreement to be considered valid. Even if both parties sign a contract with an arbitration clause, if one party does not want to resolve future issues through arbitration, they generally cannot be forced to.
Some states only require “consideration” for an arbitration clause to be held binding, while others require that consideration not be provided until later in the contract or at all. If consideration is not explicitly mentioned, the arbitration clause will likely still be considered valid by a court unless it can be shown that one party was somehow coerced into signing it.
For individual arbitration clauses to remain binding throughout the contract’s existence, the law requires them to last longer than any grievance occurring during its duration.
This means if you file a breach of contract suit against someone but they have an arbitration provision in their agreement with you, the law would require that you resolve your dispute through arbitration first before bringing suit.
The law governing arbitrations also provides for a waiver of an arbitration clause, but some courts will not enforce such waivers except under extreme circumstances.
For federal employees and those working in federal facilities, such as a US Post Office, federal regulations require that all disputes be resolved through binding arbitration as opposed to the federal court system. Such rules do not apply to private citizens and state requirements still apply.
Under the arbitration rules, if each party agrees that the final arbitration award can be entered as a judgment in any federal or state court that has original jurisdiction, then that filed arbitration award will give that court the power to enforce the arbiter’s decision.
After an arbitration award has been filed, the parties will have to accept the decision of the arbitrator and abide by their decision
Where Is The Arbitration Clause Located?
A recent study from the Consumer Financial Protection Bureau found that one in five Americans has an arbitration clause in their banking agreements.
Additionally, most consumers, including those with a credit card or checking account, did not know whether they had agreed to give up their right to file a lawsuit against their bank or credit card company.
Even among those who had actually read the agreement, fewer than 40% said they knew if it included an arbitration clause.
The study also found that almost 75% of people surveyed said they were not aware of these provisions or their consequences. On top of this, 60% of those who were familiar with arbitration clauses were required to sign them as a condition of getting a job or opening a bank account.
Forced arbitration clauses are buried deep in the fine print of consumer contracts and often include a ban on class-action lawsuits that allows individuals to join together against companies that have harmed large groups of people.
In many states, if there is any disagreement between a business and customer about whether they have signed an arbitration clause, most courts have said that there is no such agreement unless it is signed and in writing.
Therefore, if you believe your case would be better heard in court than by an arbitrator, state law could provide a way to fight back.
The bottom line: If you’ve ever read your bank or credit card contract and been shocked at all of the fine print, you should check whether it includes an arbitration clause and what rights you give up by signing this document.
Even if you don’t remember reading one before signing, look for language like “we may change these terms at any time without giving notice” because this indicates that the company reserves the right to amend your contract unilaterally.
What Is Binding Arbitration?
Binding arbitration is much like regular arbitration, where the parties to a dispute agree to have a neutral third party, called an arbitrator, decide the outcome. With binding arbitration, the arbitrator’s decision is binding on the parties, meaning that they are obligated to comply with the arbitrator’s decision.
If you are not satisfied with the decision of the arbitration, you may file an appeal. The appeal must be filed within the time period specified in the arbitration agreement. Filing an appeal does not automatically stay the arbitration decision.
If you are not satisfied with the result of your appeal, there may be other legal actions available to you. The Federal Arbitration Act and some state laws provide some reasons on how a final award by an arbiter can be vacated (thrown out), modified, or corrected.
These limited reasons are very specific to each situation. Thus, it is important for you as a party in an arbitration proceeding to familiarize yourself with these legal guidelines before making any decisions regarding your case.
Do I Need An Attorney For My Arbitration Clause Issue?
A contract lawyer will carefully review your company’s existing contracts and assist in creating an Arbitration Clause that can bind the parties involved with the contract.
The reasons why it’s a good idea to hire a business lawyer for arbitration clauses can be summarized in three points: (1) it can save time, (2) it can save litigation costs, and (3) it can streamline disputes and therefore reduce stress.
On the other hand, if you feel that an arbitration clause should not be enforceable against you, contact an attorney to discuss your rights if you have a potential dispute against a business.