An arbitration agreement is formed when two parties agree not to sue each other over a legal dispute. Instead, the parties agree to resolve their issues through arbitration. Arbitration is a different process from a court trial. In arbitration, a neutral third-party mediator acts to intervene between the parties and facilitate discussion. The parties seek to reach a conclusion on whatever issue they are disputing about.
Depending on whether it is mandatory or non-mandatory, the results of arbitration may or may not be binding under law. Usually, more formal arbitrations that closely resemble trial will be binding under law.
An arbitration agreement is mainly used in the context of various contracts. It is usually embedded as an "arbitration clause" within an existing contract. The clause may require the parties to engage in arbitration rather than a lawsuit in the future. Arbitration agreements are used in:
- Lending and distribution contracts
- Employment contracts
- Business agreements
- Various loan documents
- Shipping contracts
Arbitration agreements can also be formed separately as their own agreement. This can happen for instance if there is a specialized project that the parties need to work on together.
In most cases, arbitration agreements, and the awards granted as a result of them, are final, especially if they are part of a valid contract. They can be contested if they were not properly formed or if they were formed as a result of coercion or fraud. Most contracts will contain specific language stating whether or not any of the contract terms (including an arbitration agreement) can be modified.
Arbitration agreements can severely limit a person’s legal options. Thus, one should be wary of the consequences before signing or agreeing to such as clause. You may wish to hire a business lawyer
if you need to enter into an agreement that might contain an arbitration clause. Your lawyer can tell you how the agreement may affect you, and can represent you if you need to take legal action. Your lawyer can also be present at the arbitration meeting itself to represent you.