What is an Arbitration Agreement

An arbitration agreement is included within many contracts. In larger contracts the agreement can be presented as a clause in addition to the major points of the document. Arbitration agreements are created to settle disputes between two or more parties. The parties who sign the contract agree to let an arbitration mediator or facilitator solve any dispute that may arise.

Binding arbitration is the act of settling disputes and disagreements between parties who have entered into a contract of some type. The dispute can be over lost wages, unsatisfactory work, a defective product or mistreatment in the workplace. Any number of disputes can be solved by using the arbitration process.

Arbitration agreements can be very detailed and elaborate or as simple as one or two lines included in a contract. Either party can implement the use of the agreement if a dispute arises. By using the terms of the binding arbitration agreement, they can avoid expenses legal fees. Attorney fees and court costs can be eliminated if the case is presented to a mediator to settle the dispute. In some cases, an arbitrator’s fee for resolving a case can be higher than that of taking the case to court.

Settling agreements outside of the court room is preferred by many businesses and major corporations. Bad publicity can damage a businesses reputation and lead to substantial losses. By enforcing the binding arbitration agreement, they can keep unsavory accusations out of the public eye.

Arbitrators or mediators who are hired as third parties to solve the dispute, must abide by the rules of the American Arbitration Association and remain neutral. They must research the stories presented by each side and determine a reasonable outcome. A compromise or settlement must be reached that solves the dispute in a fair and unbiased manner.

Many consumers sign contracts not realizing there is a mandatory arbitration clause written into it. Larger companies include mandatory arbitration agreements into all of their contracts. When a consumer enters into a binding arbitration agreement they opt out of their right for a trial or to proceed with a lawsuit. This leaves the only act of recourse being to enter into arbitration proceedings.

Binding arbitration hearings are much less formal and can be resolved much quicker than if the case had been taken to court. Even though arbitration hearings may be quicker, they may also cost more depending on the severity of the dispute and the ramifications of the outcome.