What is an Arbitration Agreement?

Arbitration is governed by federal and state law, and each state has its own arbitration rules. These rules establish procedures for the confirmation of an arbitrator’s award, a process that gives an award the force and effect of a judgment after a trial. Although some states have individual arbitration rules, most have adopted the Uniform Arbitration Act.

What is Arbitration?

Arbitration is a method of resolving disputes. An arbitrator is an independent third party who decides a dispute privately. You may hire a single arbitrator or a panel of arbitrators to conduct an arbitration hearing. The number of arbitrators can be either, although some legal systems insist on an odd number to avoid ties. Most tribunals have between one and three arbitrators.

Arbitrators are appointed by disputing parties. Arbitration is an alternative to litigation (court action) and is just as final and binding (unlike mediation, negotiation, or conciliation).

What is an Arbitration Agreement?

Arbitration can only proceed if both parties agree to it.

The arbitration agreement definition is not complicated. It is common to sign an arbitration agreement at the start of a contractual relationship, whether employee/employer or a business contract position.

The agreements are usually buried in employee handbooks or employment contracts under headings such as “Arbitration” or “Dispute Resolution.” Employee arbitration agreements can also be found near the end of larger contracts.

Arbitration clauses will typically require binding arbitration for all disputes arising from the larger contract. Some contracts specify that only certain disputes will be arbitrated.

The agreement may also govern the arbitration. Arbitration rules, like those of the American Arbitration Association (AAA), and the number of arbitrators may also be specified, like the process for choosing them. Arbitration can also be agreed to after a lawsuit has been filed or a conflict has arisen.

Benefits of Arbitration

The arbitration process is a private trial paid for by the parties, thus avoiding court proceedings. A neutral third-party arbitrator will resolve the dispute instead of the courts. Attorneys for both sides will often make oral arguments, though the presentation may be just documented, unlike a court bench or jury trial. To understand the advantages and disadvantages of arbitration, read the following.

Pros of Arbitration

  1. Objectivity: Choice of Arbitrator

Arbitrators are usually picked jointly by parties to the dispute, so both parties have confidence that the arbitrator will be impartial and unbiased.

  1. Privacy: Out of the public eye

In contrast to a trial, arbitration leads to a private resolution, so the details of the dispute and the resolution can remain confidential. A well-known public figure or a client in a business dispute might find this enticing because all evidence, statements, and arguments will be confidential. Even if certain records are not released, there is still a risk that some sensitive business information will be made public in court.

  1. Faster Resolution and Easier Scheduling

Disputes are usually resolved sooner. Obtaining a court trial date can take several years, whereas an arbitration date can usually be achieved in a few months. A trial must be scheduled on a court calendar, usually behind schedule without hundreds, if not thousands of cases. Arbitration hearings, however, can be conveniently scheduled when the parties and arbitrators are available.

  1. It’s easier: Simplified evidence rules and procedures

Litigation will inevitably involve filing papers and motions and attending court processes such as motion hearings. When it comes to arbitration, the usual rules of evidence are not strictly applied, making it easier to admit the evidence. In arbitration, discovery, which involves taking and answering interrogatories, depositions, and requests for documents, may be greatly reduced. Most issues, such as who will be called a witness and what documents must be produced, are resolved by phone calls with the arbitrator.

  1. Less expensive

Arbitration typically costs less than litigation, but not always. Lawyer fees are reduced as arbitration is more timely than court proceedings. Preparation for arbitration is less costly than a jury trial.

  1. Finality: Dispute is over sooner

In binding arbitration, the appeals process is limited. Arbitration gets finality, which is not always possible with a trial decision, which can be appealed, retried, and appealed again.

  1. A class action waiver is beneficial for employers

Recently, the United States Supreme Court confirmed that class action waivers could be included in arbitration agreements. To limit the risk of exposure, employers increasingly included a class action waiver in employment agreements.

Cons of Arbitration

  1. Poor transparency

Hearings are generally held in private, which is a plus for many. Nevertheless, this lack of transparency may cause the process to be biased since courts infrequently review arbitration decisions.

  1. Costly

Arbitration can be more expensive than litigation in many cases. Good arbitrators can charge substantial fees. An award or decision in non-binding arbitration is not ‘binding,’ and the parties are free to take their issue back to court, essentially adding the cost of litigation to the cost of arbitration. Employers must pay the arbitrator’s fees in full. For employment law cases, arbitrators’ fees can be very high.

  1. Subjective Arbitrator

Arbitrators are not always chosen objectively. Arbitrators may be biased by their association with one party or being chosen from an agency. In such cases, neutrality is lost.

  1. Following the law arbitrarily

Arbitrators are generally required to follow the law, but the standards used are unclear. If the arbitrators are not strictly following the law, they may consider the “apparent fairness” of the respective positions. When reading the law strictly, your party will be favored.

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  1. Questionable Fairness

The parties are not allowed to choose arbitration by mutual consent if arbitration is mandated by contract. If one party wants to force arbitration, a jury trial may be more advantageous.

  1. No jury

In most cases, having a jury prevents biases and unfairness. An arbitrator acts as both judge and jury, eliminating juries completely.

  1. Unbalanced

Large employers and manufacturers often benefit from arbitration clauses when challenged by employees or consumers who don’t understand how arbitration works.

  1. Unpredictability: Unconventional outcomes

Courtroom trials follow formal rules of procedure and evidence, but arbitration does not. A jury or judge may consider some evidence, but not by an arbitrator. A judge or jury may not consider evidence that an arbitrator finds, which could damage your case. A witness’ testimony cannot be cross-examined if documents provide certain information.

  1. Finality: No appeals

The arbitration decision may be favorable for you, but you should be aware of the fact that both sides give up their right to appeal. One party has a very limited chance of correcting an erroneous decision.

You may be surprised by an arbitrator’s rulings or unconventional solutions. This can be a pro or con, so consider carefully how this will affect your decision.

What is a Binding Arbitration Agreement

In the end, what does arbitration mean? Binding arbitration involves submitting a dispute to a neutral party who handles the case. A trial by jury or judge is replaced by arbitration. Moreover, there are very limited grounds for appealing or setting aside an arbitration decision. By signing an arbitration agreement, a person gives up the right to go to court.


Instead of engaging in a lawsuit or trial, a dispute should be submitted to arbitration when all parties agree. These parties have probably decided that they cannot resolve the dispute themselves, that outside mediators or conciliators will not assist them. Therefore, they would like someone else to impose an agreement binding on them, whether or not they like the decision.

Article by Megan Thompson

Megan Thompson is a legal writer at Lawrina. Megan writes about different law practice areas, legal innovations, and shares her knowledge about her legal practice. As a graduate of the American University's Washington College of Law she is an expert of law in Lawrina's team and has a slight editing touch to all content that is published on the website.

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