Arbitration Agreement: Definition, How They Work

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Quick Facts — Arbitration Agreement Lawyers

What Is An Arbitration Agreement?

An arbitration agreement is a legally binding agreement that offers an alternate dispute resolution between two parties or more. Arbitration agreements provide an alternative to civil court litigation. Parties sign an arbitration agreement and enter a process known as arbitration if a dispute arises.

Here is a web article with more information about arbitration agreements.

Understanding Arbitration

Arbitration is a form of alternative dispute resolution (ADR) that is generally more cost effective than going through the court system in the US. It solidifies an agreement between two disputing parties using an arbitration agreement, and typically limits discovery which can create huge bills for litigation in the courts. The cost for discovery in arbitration will, however, depend on what the two sides agree to. Typically, both parties mutually agree to use arbitration to settle disputes before creating a formal relationship.

Instead of using a judge at trial, arbitration uses a neutral third-party to analyze the case's facts and circumstances. This neutral third-party is called an arbitrator and follows a specific Code of Ethics.

While generally arbitration is a less expensive, it may not always be the case and will depend on the facts of the case, such as the complexity of the dispute, number of arbitrators, and fees charged by the arbitration provider.

Here is an article that goes over arbitration in more detail.

Purpose Of Arbitration Agreements

The purpose of an arbitration agreement is that the dispute process is faster and more affordable than litigation. Cases are less formally presented than legal proceedings as well. However, there are pros and cons of signing an arbitration agreement, of which you should be aware.

Pros of Signing an Arbitration Agreement

Arbitration agreements have several distinct advantages. Regardless of your industry, you can use these advantages by including an arbitration clause in your contracts.

These are the pros of signing an arbitration agreement:

  1. Avoids civil court hostility
  2. Less expensive than civil litigation
  3. Resolutions are generally faster
  4. Process is more flexible than litigation
  5. Proceedings are not on public record
  6. Rules of Evidence do not apply
  7. Parties can mutually agree to an arbitrator

As you can see, arbitration agreements can be useful for keeping costs low and dispute processes more flexible. They are a popular ADR method for companies based on these reasons alone.

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Cons of Signing an Arbitration Agreement

However, there are disadvantages associated with arbitration agreements. It would be best if you discussed them and how they affect you with an arbitration lawyer.

These are the cons of signing an arbitration agreement:

  1. Limited form of legal redress
  2. Not always a level playing field
  3. Objectivity is questionable
  4. Process is not always transparent
  5. Arbitration costs are rising
  6. Fewer opportunities to appeal the decision

These disadvantages can significantly affect your case's outcome and even how you choose to move forward in the future. Consider them carefully when including them in contracts or being asked to sign one.

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Suing After You Sign An Arbitration Agreement

You generally cannot sue or be sued in court after you sign an arbitration agreement. If the original contract included an arbitration clause, it means that both parties agreed not to pursue legal action in court against the other. Any disputes that arise will have to be settled through arbitration.

While signing an arbitration agreement generally means the parties will resolve their dispute through arbitration, there may be some certain circumstances where parties can still sue in court, such as to enforce or challenge and arbitration award.

You can check out this article to learn more about the limitations of signing an arbitration agreement.

Are Arbitration Agreements Legally Binding?

Arbitration agreements are legally-binding if the case is disputed through binding arbitration. If the arbitration is non-binding, then you can pursue the case in court. It is worth noting, though, that a non-binding arbitration agreement can still be legally binding if both parties agree to abide by the arbitrator’s decision. If the arbitration is binding, then it is enforceable under law.

In general, you will know if the arbitration agreement that you are signing is legally-binding or not. It is worth noting that any other contracts you sign during arbitration are valid and enforceable as well.

Non-bind arbitration agreements carry little weight in court if one party wishes to sue after signing an arbitration agreement. It is possible that the litigating party could be countersued for a breach of the original arbitration agreement.

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Arbitration Agreements and Employment

More companies are asking employees to sign an arbitration agreement. However, many employees are not entirely sure of what they are being asked to sign. Therefore, both employer and employee will benefit from understanding their roles related to arbitration agreements and employment.

Employer

Employers may ask employees to enter into arbitration agreements. Essentially, you are asking employees to give up their right to sue in civil court over issues like breach of contract, discrimination, harassment, and wrongful termination. It is a big deal to ask employees to sign one, which means you should take care when implementing them into your legal strategy.

However, numerous surveys are showing that employers are using a mandatory arbitration process. In fact, more than 56 percent require their employees to do so as a condition of employment.

Employee

Arbitration agreements do not favor employees. While the process of arbitration is not necessarily a bad thing for employees, forced arbitration is.

It namely deprives them of their rights to the civil justice system. Employees under forced arbitration file claims rarely. This situation gives rise to abusive employment practices by allowing companies to sidestep the civil justice system.

An employee should carefully review an employment contract and the arbitration agreement employment clause with employment lawyers before signing. He or she can provide legal advice and information regarding the impact on your rights.

This article will help you learn more about arbitration agreements and employment.

Arbitration Agreements and Real Estate

In real estate matters, arbitration agreements are used on a case-by-case basis. Many real estate agents do not disclose to clients that they do not have to engage in arbitration proceedings. As such, clients must go to civil court unless the real estate agent agrees otherwise.

It is also possible that an arbitration agreement real estate case could result in additional dispute resolution proceedings if buyers, sellers, and agents are involved. This situation results in additional costs to the real estate agent.

Simply put, real estate agents may not want to sign an arbitration agreement to avoid legal issues. However, it would be better if you always spoke with real estate lawyers to help you make this decision for your specific situation.

Who Needs An Arbitration Lawyer

Hiring an arbitration lawyer is not necessary to enter into an agreement. However, the arbitration process can be contentious, and the outcome will affect your rights. As such, it is critical to hire an arbitration lawyer to protect them.

You need an arbitration lawyer if:

  1. You are worried about your rights
  2. You are struggling to plead your case without a lawyer
  3. You are a smaller organization going up against a larger faction
  4. You are facing a company that is experienced with arbitration
  5. You are worried about the potential outcome

Your arbitration lawyer will also help you find an arbitrator that can handle the dispute. Since you will have to agree upon an arbitrator with the opposing party mutually, it is helpful to have a legal professional on your side during this process. He or she can negotiate terms and provide representation when facing the opposing party or parties of your case.

Additionally, your arbitration lawyer can help you resolve the process from start-to-finish. Rather than leave your case to conjecture, ensure that you hire an arbitration lawyer to help you stick to the verifiable facts of your case and seek the most favorable outcome possible.

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ContractsCounsel is not a law firm, and this post should not be considered and does not contain legal advice. To ensure the information and advice in this post are correct, sufficient, and appropriate for your situation, please consult a licensed attorney. Also, using or accessing ContractsCounsel's site does not create an attorney-client relationship between you and ContractsCounsel.


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Employment

Arbitration Agreement

Texas

Asked on Jun 17, 2025

Is an arbitration agreement enforceable if I signed it without fully understanding its implications?

I recently signed an employment contract that included an arbitration agreement, but I did not fully comprehend the implications and consequences of such an agreement. I was not provided with sufficient time to review the contract or seek legal advice before signing. Now I am concerned about the enforceability of the arbitration agreement and whether I have any recourse to challenge it. Can you please advise me on the potential options I have in this situation?

Christopher N.

Answered Jun 20, 2025

The short answer is: likely yes. A contract is such that there has to be a "meeting of the minds" as to the terms of contract. Understanding that you were under some pressure from your employer to sign, there is likely a provision that says you read and comprehended the contract overcoming the argument that you did not understand. There are sometimes options to avoid the arbitration clauses, but they are state and contract specific. If the time comes when you think the arbitration clause is going to be trigger, speak with a local employment lawyer to figure out how to pull that trigger. Good luck.

Read 1 attorney answer>

Employee Rights

Arbitration Agreement

Washington

Asked on Nov 4, 2024

Can an arbitration agreement prevent me from taking legal action against my employer for workplace discrimination?

I have recently discovered evidence of workplace discrimination at my job, including instances of unequal treatment, harassment, and retaliation. I have read through my employment contract and noticed that it includes an arbitration agreement, which states that any disputes between me and my employer must be resolved through arbitration rather than through the court system. I am concerned that this agreement may prevent me from pursuing legal action against my employer for the discrimination I have experienced. I would like to know if the arbitration agreement is enforceable in this situation and if it can prevent me from seeking justice through the legal system.

Merry K.

Answered Dec 3, 2024

Speaking generally, an arbitration agreement in an employment contract often won't be upheld unless it clearly and specifically addresses your rights under both the Washington State Law Against Discrimination and your various employment law protections under federal law. Please be aware that in Washington, you can file a complaint with the Washington State Human Rights Commission, and ask the agency to automatically file on your behalf with the Equal Employment Opportunity Commission (I worked for the HRC three times, and was also a Tacoma Human Rights Commissioner, and have a long history in this field). I would be happy to help you with a phone consultation and perhaps help you write up a complaint (the agencies will want to write their own, but you should come in with a time line and complaint draft pre-written so you don't forget anything; you should also bring in a list of witnesses and list of people treated differently from you, if applicable). Please keep in mind that both agencies have long waiting lists and both are neutral - neither represents you. To file in state court, you can skip the HRC; to file in federal court, it's a mandatory prerequisite to first file with the EEOC and obtain a "right to sue" letter. Another option for you is to schedule a consultation with an employment attorney through NELA.org - there are NELA attorneys in every state.

Read 1 attorney answer>

Contracts

Arbitration Agreement

New York

Asked on Dec 18, 2024

Can my employer enforce an arbitration agreement that was included in my employment contract without my knowledge or consent?

I recently discovered that my employment contract contains an arbitration agreement, which I was not aware of or given the opportunity to review or negotiate before signing. I feel that this agreement may limit my rights as an employee and prevent me from pursuing legal action in case of workplace disputes or violations of my rights. I would like to know if my employer can enforce this arbitration agreement, given that I did not provide explicit consent or have any knowledge of its existence prior to signing my contract.

Danny J.

Answered Dec 29, 2024

Your concern about the arbitration agreement in your employment contract is understandable. This situation raises important questions about contract formation and the enforceability of arbitration clauses. Generally, for an arbitration agreement to be enforceable, it must meet certain criteria: 1. Mutual assent: Both parties must agree to the terms. 2. Consideration: Something of value must be exchanged. 3. Conspicuousness: The clause should not be hidden or buried in fine print. 4. Fairness: The terms should not be unconscionable or overly one-sided. The fact that you were unaware of the arbitration clause and didn't have an opportunity to review it could potentially impact its enforceability. However, the specific circumstances of how the contract was presented and signed are crucial in determining whether the agreement is binding. Key factors to consider: 1. How the contract was presented to you 2. Whether you had a reasonable opportunity to review the entire contract 3. If there were any representations made about the contract's contents 4. Your state's specific laws regarding arbitration agreements in employment contracts It's important to note that many courts have upheld arbitration agreements in employment contracts, even when employees claim they were unaware of them. However, there are exceptions, and the enforceability can vary based on state laws and specific circumstances. Given the complexity of this issue and its potential impact on your rights as an employee, it would be advisable to have a thorough review of your specific situation. As an experienced employment law attorney, I could: 1. Review your employment contract and the arbitration clause 2. Assess the circumstances under which you signed the contract 3. Evaluate the enforceability of the arbitration agreement under applicable state and federal laws 4. Advise you on potential options for challenging the agreement, if appropriate 5. Guide you on how to proceed in addressing any workplace disputes Would you like to discuss your situation in more detail to better understand your rights and explore the best course of action regarding this arbitration agreement?

Read 1 attorney answer>

Arbitration

Arbitration Agreement

Connecticut

Asked on Mar 30, 2021

Why do companies use arbitration clauses?

Trying to better understand them.

Donya G.

Answered Mar 30, 2021

Companies use arbitration clauses to get a resolution to the dispute faster and sometimes because it can be less costly. You should ensure that the clause protects you as much as possible. DISCLAIMER The answers to these questions do not constitute legal advice and does not create an attorney-client relationship with the attorney and anyone who reviews these responses.

Read 1 attorney answer>

Arbitration

Arbitration Agreement

Connecticut

Asked on Mar 30, 2021

What is an arbitration clause?

I want to better understand what these are and if I need to include them in my agreement.

Donya G.

Answered Mar 30, 2021

An arbitration clause allows the parties to have their disputes heard by an Arbitrator (trier of fact, similar to a Judge), instead of going to court). When parties disagree, they can either go to court (the average case takes about 2 years to be heard) or to have their case tried before an arbitrator (ususally a much quicker and sometimes less expensive option). DISCLAIMER The answers to these questions do not constitute legal advice and does not create an attorney-client relationship with the attorney and anyone who reviews these responses.

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