Arbitration Clause

Arbitration Clause Defined

Arbitration clauses, also known as arbitration agreements or arbitration provisions, are alternative dispute resolutions. Both parties essentially agree to settle disputes out-of-court with an arbitrator. Decisions coming from arbitration are legally binding unless the parties otherwise stipulate that the outcome is non-binding.

Laws apply to arbitration hearings at the local, state, and federal levels. You should understand how these laws apply to your situation before making legal decisions that can impact your future.

Here is an article on the definition of Arbitration Clauses.

Arbitration Clause Explained

A standard arbitration clause defines the terms and conditions surrounding the dispute resolution process. Dispute resolution addresses legal concerns that go beyond customer service issues. However, arbitration clause signers should understand that they limit their right to civil court redress when they sign them.

Here is an article on Arbitration Agreements.

Purpose of an Arbitration Clause

The purpose of an arbitration clause is to reduce costs associated with settling disputes. Arbitration proceedings are faster and private. Parties can also choose whom they want to handle the proceedings.

For example, international contracts follow an arbitral tribunal process where proceedings consist of one or three arbitrators. Other laws apply to other locations.

Here is deeper look into Arbitration Clauses by the International Chamber of Commerce.

Arbitration Clause Examples

Examples of arbitration clause use include:

• Example 1: Keeping divorce proceedings more private
• Example 2: Settling disputes with insurance companies
• Example 3: Working through issues with business partners
• Example 4: Not hiring employees until they sign the arbitration clause
• Example 5: Not taking personal injury cases to civil court

Arbitration Clause Samples

Sample 1 - Employment Contract:

Arbitration. Except for disputes, controversies or claims arising out of or related to the Proprietary Agreement and/or the Non-Competition Agreement attached as Annex A and B, respectively, any dispute, controversy or claim arising out of or relating to this Agreement, including but not limited to its existence, validity, interpretation, performance or non-performance, or breach, shall be decided by a single neutral arbitrator agreed upon by the parties hereto in Wilmington, North Carolina in binding arbitration pursuant to the commercial arbitration rules of the American Arbitration Association then in effect. The parties to any such arbitration shall be limited to the parties to this Agreement or any successor thereof. The written decision of the arbitrator shall be final and binding and may be entered and enforced in any court of competent jurisdiction. Each party waives any right to a jury trial in any such forum. Each party to the arbitration shall pay its fees and expenses, unless otherwise determined by the arbitrator.

Reference:

Security Exchange Commission - Edgar Database, EX-10.281 4 d226725dex10281.htm EMPLOYMENT AGREEMENT, Viewed April 5, 2021, < https://www.sec.gov/Archives/edgar/data/1003124/000119312511292827/d226725dex10281.htm >.

Sample 2 – Sales Contract:

Any dispute arising from or in connection with the Sales Contract shall be settled through friendly negotiation. In case no settlement can be reached, the dispute shall be then submitted to china international economic and trade arbitration commission for arbitration in accordance with its rules in effect at the time of applying for arbitration. The arbitral award is final and binding upon both parties.

Reference:

Security Exchange Commission - Edgar Database, EX-10.52 9 dex1052.htm SALES CONTRACT, Viewed April 5, 2021, < https://www.sec.gov/Archives/edgar/data/1481513/000119312510025743/dex1052.htm >.

Sample 3 – Share Purchase Agreement:

12.10 Mediation; Binding Arbitration.

(a) Except as otherwise provided in Sections 2.3(c)(v), 6.14, 7.6 and 12.11, any controversy or claim arising out of or relating to this Agreement and the rights of the parties will be submitted to JAMS, or its successor, for mediation, and if the matter is not resolved through mediation as provided herein, then it will be submitted to JAMS, or its successor, for final and binding arbitration in accordance with the provisions of this Section. The agreement of the parties to arbitrate covers all disputes of every kind relating to or arising out of this Agreement, including actions for breach of contract with respect to this Agreement, as well as any claim based upon tort or any other causes of action relating to this Agreement, such as claims based upon an allegation of fraud or misrepresentation and claims based upon a federal or state statute. The arbitrator selected according to procedures set forth below will determine the arbitrability of any matter submitted, and that determination will be final and binding on the parties.

(b) Either party may commence mediation by providing to JAMS and the other party a written request for mediation, setting forth the subject of the dispute and the relief requested.

(c) The parties will cooperate with JAMS and with one another in selecting a mediator from the JAMS panel of neutrals and in scheduling a mediation meeting (in person or via teleconference). The parties will share equally the costs of the mediation.

(d) All offers, promises, conduct and statements, whether oral or written, made in the course of the mediation by any of the parties, their agents, employees, experts and attorneys, and by the mediator or any JAMS employees, are confidential, privileged and inadmissible for any purpose, including impeachment, in any arbitration or other proceeding involving the parties, provided that evidence that is otherwise admissible or discoverable shall not be rendered inadmissible or non-discoverable as a result of its use in the mediation.

(e) Either party may initiate arbitration with respect to the matters submitted to mediation by filing a written demand for arbitration at any time following the initial mediation session or at any time following 30 days from the date of filing the written request for mediation, whichever occurs first (“Earliest Initiation Date”). The mediation may continue after the commencement of arbitration if the parties mutually agree.

(f) At no time prior to the Earliest Initiation Date shall either side initiate an arbitration or litigation related to this Agreement except to pursue a provisional remedy that is authorized by law or by JAMS Rules or by agreement of the parties. However, this limitation is inapplicable to a party if the other party refuses to comply with the requirements of subsection (c) above.

(g) All matters arising out of or relating to this Agreement and the rights of the parties (whether in contract, tort, or otherwise) will be governed by and construed and interpreted under the Laws of the State of Delaware without giving effect to any choice or conflict of law provision or rule (whether of the State of Delaware or any other jurisdiction) that would cause the application of Laws of any jurisdiction other than those of the State of Delaware. The arbitration will be conducted in Minneapolis, Minnesota. The arbitration will be administered by JAMS pursuant to JAMS’ Comprehensive Arbitration Rules and Procedures (the “JAMS Rules”), subject to the agreements set forth herein. The arbitrator will not have the power to add to, modify or change any of the provisions of this Agreement, or to make mistakes of law. The parties may conduct discovery, including document requests, depositions and interrogatories, in accordance with Delaware law.

(h) The arbitration will be conducted by one neutral arbitrator mutually agreed upon by the parties. If no arbitrator is agreed upon within 10 days following commencement of arbitration, or if the arbitrator selected by the parties is unable or unwilling to arbitrate the dispute, the arbitrator will be such neutral arbitrator as is selected by JAMS. The award in writing of the arbitrator will be final and binding upon the parties.

(i) The arbitrator will be bound to honor claims of privilege or work-product doctrine recognized at law, but the arbitrator will have the discretion to determine whether any such claim of privilege or work product doctrine applies based upon applicable law or ethical rules.

(j) The arbitrator will provide a reasoned basis for the resolution of each dispute and for any award. The arbitrator will have power and authority to award any remedy or judgment that could be awarded by a court of law or equity in the State of Delaware not inconsistent with or in addition to the provisions of this Agreement.

(k) Except as set forth in this subsection (k) or in subsection (l) below, each party will bear its own costs in connection with any arbitration or mediation proceeding. The costs of the arbitration and mediation, including any JAMS administration fee, and arbitrators’ and mediators’ fees, and costs of the use of facilities during the hearings, will be borne equally by the parties in the first instance. The arbitrator shall, as part of the award, apportion the costs of arbitration and mediation based on the extent to which each Party prevailed.

(l) If a party to this Agreement brings any arbitration action, or any other action, suit, counterclaim or appeal, for any relief against the other parties, declaratory or otherwise, to enforce the terms hereof or to declare rights hereunder (referred to herein as an “Action”), the non-prevailing party in such Action will be required to pay to the prevailing party in such Action a reasonable sum for the prevailing party’s attorneys’ fees and expenses incurred in prosecuting or defending such Action and/or enforcing any judgment, order, ruling or award (referred to herein as a “Decision”), granted therein. Any Decision entered into in such Action will contain a specific provision providing for the recovery of attorneys’ fees and expenses incurred in enforcing such Decision. The court or arbitrator may fix the amount of reasonable attorneys’ fees and expenses upon the request of any party. For purposes of this Section, attorneys’ fees will include, without limitation, fees incurred in connection with (1) postjudgment motions and collection actions, (2) contempt proceedings, (3) garnishment, levy and debtor and third party examination, (4) discovery, and (5) bankruptcy litigation.

(m) Nothing in this Section will limit a party’s ability to (i) enforce an arbitration award in a court of appropriate jurisdiction, or (ii) obtain specific performance or other injunctive relief.

Reference:

Security Exchange Commission - Edgar Database, EX-2.1 2 d557691dex21.htm SHARE PURCHASE AGREEMENT, Viewed April 5, 2021, < https://www.sec.gov/Archives/edgar/data/842023/000119312513262619/d557691dex21.htm >.

Common Contracts with Arbitration Clauses

Common contracts with arbitration clauses include:

• International contracts
• Insurance contracts
• Employment agreements
• Partnership agreements
• Prenuptial agreements
• Credit card agreements
• Purchase agreements

Arbitration Clause FAQs

Arbitration clauses limit both party’s rights to file a civil claim in court. It’s essential to understand what you are signing or drafting beforehand.

Below, please find the answers to some common arbitration clause FAQs:

Are arbitration clauses legal?

Yes, arbitration clauses are legal. However, they don’t apply to cases challenging the enforceability of the agreement.

For more information about how to beat an arbitration clause or draft one, speak with arbitration lawyers for advice.

Is it OK to sign an arbitration agreement?

It’s OK to sign an arbitration agreement when you understand the legal implications involved. Some companies won’t work with you unless you sign their arbitration agreement. For instance, employers won’t hire employees who don’t sign their arbitration clause.

Arbitration attorneys can help you review the agreement before signing.