Arbitration Agreement: Definition, How They Work

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.

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.

Meet some lawyers on our platform

Ralph S.

82 projects on CC

CC verified

View Profile

Dolan W.

1297 projects on CC

CC verified

View Profile

Faryal A.

422 projects on CC

CC verified

View Profile

Lori B.

260 projects on CC

CC verified

View Profile

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.

Image via Pexels by Cristina Morillo

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.

Need an arbitration lawyer?

If you need an arbitration lawyer, explore your options with ContractsCounsel. Sign-up today and start receiving free proposals.