n today’s fast-paced business and employment environment, disputes are almost inevitable. How those disputes are resolved, however, can significantly impact time, cost, and relationships. One increasingly common method of resolving conflicts outside the court system is arbitration, and at the heart of this method lies the arbitration agreement.
An arbitration agreement is a written contract in which two or more parties agree to settle disputes through arbitration rather than litigation. This agreement may appear as a standalone document or as a clause within a broader contract—such as employment agreements, consumer contracts, business partnerships, or even online terms of service.
Why Arbitration?
The appeal of arbitration comes largely from its efficiency. Court cases can drag on for years, burdened by procedural delays and overcrowded dockets. Arbitration, in contrast, is designed to be faster and more flexible. Parties select a neutral arbitrator—often an expert in the relevant field—who listens to both sides and makes a decision.
Another major advantage is privacy. Unlike court proceedings, which are usually public, arbitration sessions take place in private settings. This confidentiality can be especially valuable for businesses wishing to protect sensitive information or maintain their reputation.
Cost is another factor. While arbitration is not always cheap, it is generally less expensive than litigation because it avoids lengthy procedural steps like multiple hearings, extensive motions, and appeals.
Key Features of an Arbitration Agreement
A well-drafted arbitration agreement typically includes several elements:
Scope of the disputes: It defines what types of disagreements must go to arbitration. Some agreements cover all disputes related to the contract, while others focus on specific issues.
Selection of arbitrators: The agreement may outline how arbitrators will be chosen—often through a reputable arbitration institution such as the American Arbitration Association (AAA) or a mutually agreed-upon individual expert.
Arbitration rules and procedures: These can include timelines, evidence procedures, and how hearings will be conducted. Many agreements simply reference existing institutional rules.
Location and governing law: Parties specify where arbitration will take place and which laws will apply.
Binding decision: Most arbitration agreements state that the arbitrator’s decision is final and legally binding, with very limited grounds for appeal.
