Definition
Rather than court litigation, this clause requires disputes to go to a private arbitrator whose decision is binding. It's faster than court but limits your appeal rights.
Not sure where this fits?
Answer a few questions and we’ll open the path that fits, at the right step.
Find my pathAbout this term
Arbitration clauses require disputes to be resolved by arbitrator (private judge) instead of court. Process: arbitrator hears evidence, makes binding decision (enforceable like court judgment). Advantages: faster than litigation (no court backlog), private (confidential), flexible rules (arbitrator applies contract, not necessarily strict law), less formal. Disadvantages: limited appeal rights (arbitration decision is final), arbitrator costs (arbitrator paid by parties), less precedent/law development, might not be fair if contract is one-sided. Arbitration is common in: employment contracts, consumer contracts, commercial real estate. Residential purchase contracts vary by state/custom. Arbitration clauses are sometimes controversial (limit access to courts). Enforceability: Federal Arbitration Act generally enforces arbitration clauses (US courts favor arbitration). Understanding arbitration: if you arbitrate, you give up court right (appeals are very limited). Arbitrator selection matters: some arbitrators are fair, others favor particular party types.
Pro Tip
Arbitration clauses limit your court rights but often resolve disputes faster. Understand arbitration before agreeing.
Example
Commercial contract requires disputes be arbitrated instead of litigated. Parties present case to arbitrator; arbitrator's decision is binding and can't be appealed.