Arbitration Agreement

Free Arbitration Agreement Template

Not all business disputes must go through litigation. Some can be resolved by mediation, and others through arbitration. In arbitration, a neutral party decides the case and gives an award. However, for a dispute to go to arbitration, both parties must sign an agreement or demonstrate by actions that they accept binding arbitration instead of other legal action. You may have a separate arbitration agreement or include it as a clause in a broader contract.

Arbitration can be mandatory, meaning the original contract forgoes litigation; thus, all disputes must go to arbitration, or it can be voluntary, which means both parties agree to it after a fallout, although they have other viable options. It can also be binding or non-binding.

You may have entered into arbitration agreements several times without realizing it. It may have been an employment or a consumer agreement you signed. For example, most credit card contracts include a clause stating that if a cardholder and a creditor cannot resolve a dispute informally, both parties agree to submit it to binding arbitration. Consumers often have a choice to opt out of the agreement within a specified period.

As this article demonstrates, creating an arbitration agreement is straightforward and offers several advantages over litigation.

Advantages of an Arbitration

Resolving disputes through arbitration rather than in a court of law presents the following advantages.

• It offers a more private way to resolve disputes.
• It is relatively fast as it doesn’t involve all the protocols and procedures followed in court.
• It can be cost-effective, depending on the value of the case.
• The disgruntled parties may get to choose and agree on an arbitrator with expertise on the subject matter.

Signing an agreement is the best way to ensure arbitration works for both parties. The document sets out rules beforehand and determines whether a decision would be final and binding or if parties can seek alternative remedies.

How to Create Your Arbitration Agreement

If you are an employer, consider having employees sign an arbitration agreement. This contract can help limit legal costs and save time from lengthy litigation processes.

Start by researching the governing laws and understanding how the law works can help you avoid shooting yourself in the foot, for instance, by not insisting on a mandatory arbitration that becomes too costly in the long run. Speak with an attorney if you need help understanding the legal framework.

Also, think carefully about which disputes will be arbitrated, how you and the other party will pick an arbitrator, who will cover administrative costs and arbitrator fees, and where the arbitrator will meet both parties.

Once you have all this information, you are ready to draft your document.

• Write the title: Ensure the title identifies the document as an Arbitration Agreement. You don’t want someone arguing that the contract wasn’t clear on its purpose.

• State the effective date: The date the arbitration agreement becomes active may differ from when you sign it. Mention the effective date near the top of the document.

• Define the scope of the agreement: Decide whether you will submit all disputes to arbitration. If not, specify which ones will and when you can explore other resolution methods.

• Set the arbitration procedural rules: There may be more than one set of arbitration rules where you work. Businesses in the US, for example, can choose whether to use the American Arbitration Association (AAA), the Judicial Arbitration and Mediation Services (JAMS), or the International Institute for Conflict Prevention & Resolution (CPR) rules to resolve disputes. In the UK, there are the London Court of International Arbitration (LCIA) and the Court of Arbitration of the International Chamber of Commerce (ICC).

• Select a location: Determine where you want arbitration to take place. This step is crucial to prevent multi-location business representatives from traveling from place to place just to attend arbitration hearings.

• Award: State how the award will be rendered and whether or not it is binding. Also, explain how an award is implemented, for example, by obtaining a court judgment.

• Assign costs and fees to parties: The arbitration regulations you use may determine who pays some of the costs. However, some of these are often up to you to decide.

• Decide on the governing law: You must mention the specific law that governs the contract you enter. This is especially essential if your business operates in several locations.

• Allocate space for signatures: Include clearly labeled spaces for you and the other party to sign and date in consent.

Remember to use clear and concise language to avoid confusion and misinterpretations.