An arbitration clause is a provision commonly included in contracts to address the resolution of disputes between parties. It stipulates that any disagreements or conflicts arising from the contract will be resolved through arbitration rather than traditional litigation in court.

Arbitration is an alternative dispute resolution method where the parties involved present their case to an impartial arbitrator or a panel of arbitrators. The arbitrator(s) review the evidence, hear arguments, and make a binding decision, known as an arbitral award. This process is typically less formal, more streamlined, and faster than going to court.

Arbitration clauses are often favored in the professional legal field for several reasons. They provide a level of privacy and confidentiality, as arbitration proceedings are generally not open to the public. They also offer flexibility in selecting arbitrators with specific expertise, ensuring that the disputes are resolved by individuals knowledgeable in the relevant area of law.

Moreover, arbitration clauses can help avoid overcrowded court dockets and potential delays associated with litigation. They offer a more efficient and cost-effective means of dispute resolution. However, it’s important to carefully consider the specific terms of the arbitration clause, including the chosen arbitral institution, the number of arbitrators, and any limitations or requirements imposed.

While arbitration can be advantageous, it’s essential to recognize that agreeing to an arbitration clause generally means waiving the right to pursue legal action in court. Therefore, parties should carefully assess the pros and cons and seek legal advice before including or agreeing to an arbitration clause.

Example 1: General Arbitration Clause

“Any dispute, controversy, or claim arising out of or relating to this contract, including its formation, interpretation, performance, or breach, shall be resolved by arbitration in accordance with the rules of [chosen arbitral institution]. The arbitration shall be conducted by [one or three] arbitrator(s) appointed in accordance with the said rules. The place of arbitration shall be [city, country]. The language to be used in the arbitral proceedings shall be [specify language]. The arbitral award shall be final and binding upon both parties and may be enforced in any court of competent jurisdiction.”

Example 2: Employment Arbitration Clause

“Any employment-related dispute, including but not limited to claims arising under state or federal laws prohibiting discrimination, harassment, retaliation, or wrongful termination, shall be submitted to binding arbitration. The arbitration shall be conducted in accordance with the rules of the [chosen arbitral institution]. The arbitration proceedings shall take place in [city, state]. The employer and employee shall mutually agree on the selection of a single arbitrator. The costs of the arbitration, including the arbitrator’s fees, shall be shared equally by both parties. The arbitrator’s decision shall be final and enforceable as a judgment in any court of competent jurisdiction.”

Example 3 

“Any dispute, controversy, or claim arising out of or relating to this contract, or the breach, termination, or validity thereof, shall be resolved through a multi-tiered dispute resolution process. In the event of any dispute, the parties agree to first attempt to resolve the matter through good-faith negotiations. If the dispute cannot be resolved within [number of days] from the initiation of negotiations, either party may initiate binding arbitration. The arbitration shall be conducted in accordance with the rules of [chosen arbitral institution]. The place of arbitration shall be [city, country]. The language to be used in the arbitral proceedings shall be [specify language]. The arbitral award shall be final and binding upon both parties and may be enforced in any court of competent jurisdiction.”

Example 4 

“Any dispute, controversy, or claim arising out of or relating to this contract, including its formation, interpretation, performance, or breach, shall be resolved by mandatory arbitration. The arbitration shall be conducted in accordance with the rules of [chosen arbitral institution]. The place of arbitration shall be [city, country]. The language to be used in the arbitral proceedings shall be [specify language]. The parties agree to submit to the jurisdiction of the arbitrator(s) and waive their right to litigate the dispute in court. The arbitrator’s decision shall be final and enforceable as a judgment in any court of competent jurisdiction.”

• Clear and Precise Language: Use clear and precise language to ensure that the clause is easily understood by all parties involved. Avoid complex legal jargon that may lead to confusion or ambiguity.

• Incorporate Governing Law: Specify the governing law that will apply to the arbitration agreement. This helps determine the legal framework within which the arbitration will be conducted and any procedural rules that may apply.

• Choice of Arbitral Institution: Specify the name or type of arbitral institution that will administer the arbitration proceedings. Popular institutions incorporate their rules and procedures by reference.

• Number and Qualifications of Arbitrators: Clearly state whether the arbitration will be conducted by a single arbitrator or a panel of arbitrators. Specify any qualifications or expertise required for the arbitrators, if necessary.

• Seat or Place of Arbitration: Clearly identify the seat or place of arbitration, which determines the legal jurisdiction and the procedural laws that will apply. This can impact matters such as the enforceability of the award.

• Language of Arbitration: Specify the language to be used in the arbitral proceedings, including the language for written submissions and oral arguments. This ensures that all parties can effectively present their case.

• Allocation of Costs and Fees: Address the allocation of costs, including arbitrator fees, administrative fees, and any other expenses related to the arbitration process. Specify whether costs will be shared equally, borne by one party, or allocated based on the outcome of the arbitration.

• Confidentiality and Non-Disclosure: Consider including provisions addressing confidentiality and non-disclosure of the arbitration proceedings to protect sensitive or proprietary information.