What is an Arbitration Agreement?
An arbitration agreement may be defined as a contract in which the parties agree to submit any future disputes, either existing or those that may arise, to an arbitrator. In the context of outsourcing or services agreements, such an clause may be included to state that disputes between the parties are to be resolved by means of binding arbitration. The arbitrator is then charged with issuing a binding decision to the parties, with the matter being completely resolved at that time . Likewise, the agreement may stipulate that certain types of disputes are excluded from the binding process, such as matters initiated by third parties, injunctive relief, or whether the parties may seek resolution in the applicable court upon the occurrence of certain events, such as the filing of an enforcement action. This agreement can be negotiated into the contract as a matter of choice between the two parties, or it is oftentimes mandated by statute as a condition to doing business. Examples of arbitration agreements include those under the Federal Arbitration Act (FAA), the Uniform Arbitration Act, and the MAA.
Elements of a Sample Arbitration Agreement PDF
A typical sample arbitration agreement PDF will usually include clauses that address issues such as the scope of arbitration, which typically states that the parties agree to enter into arbitration any and all claims or controversies arising between them relating to this agreement, the disputes that have arisen out of it, or any other non-arbitrable matter between parties under the prevailing law. Arbitration is a form of alternative dispute resolution, known as ADR, where a neutral third party arbitrator (or panel of arbitrators) makes a decision about the parties’ dispute. This is usually in contrast to a traditional court process. Some arbitration agreements also include a forum-selection clause, which simplifies the process of where to litigate if a binding arbitration decision must be enforced.
Usually, the sample arbitration agreement or sample arbitration clause will contain a general governing clause which states the rules that will govern the arbitration process. In the absence of the rules being specifically stated, civil procedure rules (such as the Federal Arbitration Act for incidents that occur in the United States and similar state laws) or, even more likely, the rules of the American Arbitration Association apply by default. Oftentimes, they will also include a clause specifically naming the organization that will be the provider of the services.
Many arbitrations also include a clause that states how arbitrators will be named during the arbitration process. There often are special provisions for situations where there are multiple arbitrators. What is more commonly included is a clause (sometimes within the forum-selection clause) is a statement that the parties will be able to mutually select an arbitrator from a neutral list. Typically, with binding arbitrations, you need to have a contractual provision to allow the selection process to happen, including permitting the parties to have a neutral party oversee the selection. Any award granted by the arbitrator(s) and agreed upon by both disputing parties is final under the law, meaning it cannot be appealed through the court process once rendered. Parties are also usually required to bear their own costs and attorney’s fees incurred from the process.
Finally, many arbitration agreements also include a confidentiality provision, which states that the content of anything produced under arbitration is confidential and not to be disclosed to the general public or anyone else. The purpose of this is to preserve privacy, especially in personal arbitrations (e.g. child custody cases, estates cases, etc.). However, these documents still become a matter of the public record and, if used in evidence, can be subject to public access upon request.
Benefits of Employing Arbitration Agreements
One of the primary advantages of using arbitration agreements is the cost savings for each party. The parties to an arbitration will be responsible for the cost of the arbitrator, a private judge. In most cases hiring a private judge or panel of arbitrators will be less than a trial with a judge and jury. The parties can analyze the cost associated with each arbitrator and their availability when determining which arbitrator to use.
Generally, arbitration is a private matter and is not open to the public (unless the parties agree otherwise) and confidentiality is assured. The arbitration rules will generally provide that anything presented in the arbitration hearing cannot be used in a subsequent litigation. This is particularly helpful to businesses and individuals who face exposure through lawsuits as they can limit the information that a plaintiff can present in a subsequent litigation.
The arbitration process is quicker than the litigation process. While a trial can take a year or even years to occur, an arbitration hearing can be scheduled in weeks. As most arbitrators are attorneys, the discovery process should be able to be completed in a quick, efficient manner with a high likelihood of cases settling prior to an actual hearing in front of the arbitrator.
Another factor to consider is ease of enforcement of arbitration agreements. An arbitration agreement will usually be enforced by courts. Some of the first decisions in arbitration cases were decided by the Supreme Court in the late 1980s. In those cases, the Supreme Court found broadly written arbitration agreements enforceable and the subject of a motion to compel arbitration in almost all situations. There are some instances where courts have not enforced arbitration agreements. For example, courts have held that certain arbitration provisions are unconscionable where the arbitration agreement does not require the arbitrator to follow the law.
How to Edit a Sample Arbitration Agreement PDF
To customize a sample arbitration agreement PDF for specific application, start by carefully reviewing the document and identifying any provisions that are not applicable to the particular situation at hand. For example, the agreement may need to be tailored to match the specific industry or type of dispute being referenced in the contract.
When modifying clauses, pay close attention to ensure that the language remains cohesive and legally binding . It is often helpful to consult with a legal professional who specializes in the area of arbitration to ensure the updated clauses are enforceable and meet all industry standards.
In addition to updating clauses, it is important to ensure that the agreement complies with any all applicable laws and regulations in the jurisdiction. This may involve researching state, local, and national arbitration laws to ensure the document meets specific legal criteria.
Typical Mistakes When Drafting Arbitration Agreements
There are numerous issues that can arise in the drafting of an arbitration agreement that may lead to a disaster for the drafter. For example, carelessness in identifying the correct arbitral institution can result in a void agreement and potentially millions of dollars in damages. One such agreement I dealt with was for a long term care facility that agreed to arbitrate its disputes before "the American Arbitration Association or a similar organization." Domestic and international arbitration law both consider that expression to create a valid arbitration agreement because it does not identify the arbitral institution to which the matter will be submitted for final award. There was not only a corporate-level issue, but also an operational issue as to how to enforce an invalid arbitration agreement without knocking doors on every level of the judiciary.
In addition to being careful to follow the law, avoid "cut and paste" errors from other contracts. Some agreements have proven very problematic because the drafter forgot to remove the names of the corporate parties from the text.
A very common mistake is to identify too many disputes as being subject to arbitration and believing that without such broad language, the agreement will not be enforced. As the federal courts have held, parties to an arbitration agreement can waive enforcement, and the best example is the failed attempt to confirm in court an arbitral award.
A less than common mistake is the inadvertent waiver of the right to arbitrate. Some corporate documents contain merger and integration clauses and recognition of the arbitration agreement in the preamble to the corporate instrument is always a plus.
Sources for Sample Arbitration Agreement PDFs
Being a common request people have in this space, they might easily wonder where to find sample arbitration agreement PDFs. It turns out there are some strong, widely-used resources. For instance, the Association for Conflict Resolution web page for Arbitration is nice place to learn about what arbitration is. They strongly recommend you use a trained arbitrator as your referee during arbitration though, and I agree.
Another source for arbitration agreement resources is the American Bar Association site . The American Bar Association has a massive collection of legal resources, including an entire section dedicated to the peaceful resolution of disputes like arbitration, mediation, and conciliation.
The last commonly used site is called Legal Templates. It has a large amount of downloadable templates for many kinds of agreements. There’s a fee for the template, after a free trial period.
Regardless of where you find your arbitration agreement PDF, you’ll want to make sure it’s up to date with prevailing law, and review it thoroughly before using it professionally.