Have you ever signed a contract that included an arbitration agreement? If so, you might be wondering what that means for your legal rights if a dispute arises down the road. Can you still sue if you agreed to arbitration?
In this comprehensive guide, we’ll explain everything you need to know about arbitration agreements – what they are, how they work, their pros and cons, and whether you can still take legal action if you signed one. Let’s dive in!
What is an Arbitration Agreement?
An arbitration agreement is a contractual provision that requires the parties to resolve any disputes through private arbitration instead of going to court. Arbitration is an alternative dispute resolution process where a neutral third-party arbitrator hears both sides of the case and issues a final and binding decision.
The key components of arbitration agreements include:
- Voluntary process – Both parties must agree to arbitrate. It can’t be forced on just one side.
- Third-party arbitrator – A neutral arbitrator is chosen to oversee the proceedings and make a decision.
- Binding decision – The arbitrator’s ruling is legally binding on both parties, with very limited rights to appeal.
Arbitration differs from litigation in court in some important ways:
- Less formal procedures and rules of evidence
- Usually no jury
- Much more limited discovery process
- Very restricted ability to appeal the decision
- Outcomes are confidential rather than public record
Arbitration agreements are governed by the Federal Arbitration Act (FAA), which favors their enforcement except in limited cases.
How Arbitration Agreements Work
So what does the arbitration process actually look like if you have an arbitration clause in your contract? Here are the key steps:
- Initiating arbitration – One party submits a written demand for arbitration alleging a breach of contract. This is usually called a Notice of Arbitration.
- Selecting the arbitrator – The parties mutually choose an arbitrator, often using an arbitration organization’s roster of professionals.
- Evidence exchange – Relevant documents are exchanged, but the extensive “discovery” phase of litigation is limited.
- Arbitration hearing – Unlike a trial, the rules of evidence are relaxed. Hearings may take just a few hours or days.
- Arbitrator’s decision – After considering the evidence and arguments, the arbitrator issues a written binding decision.
Compared to courtroom litigation, arbitration is designed to be faster, cheaper, and more flexible. However, important tradeoffs include losing your right to a jury trial, greatly restricted abilities to obtain evidence from the other party, and very limited appeal rights.
Purposes and Benefits of Arbitration Agreements
Why would parties voluntarily agree to arbitration? There are some potential advantages:
- Avoiding the court system – Arbitration frees up crowded court dockets. Many parties view judges and juries as unpredictable.
- Lower costs – Attorney and filing fees may be lower since arbitration is more streamlined. Discovery costs are also minimized.
- Faster timeline – Arbitrations take just months compared to years for lawsuits.
- Confidentiality – Arbitrations are private rather than public like court cases.
- Mutually selected arbitrator – Parties can choose someone with relevant expertise.
However, arbitration has some downsides to consider as well.
Limitations and Drawbacks of Arbitration
While faster and cheaper than litigation, arbitration has some notable limitations:
- No jury trial – You lose your Constitutional right to have a jury decide the facts.
- Limited appeals – Grounds for appealing an arbitrator’s decision are very narrow.
- Individual claims only – Arbitration clauses often ban class actions.
- Lack of transparency – Everything happens behind closed doors.
- Unpredictable decisions – Arbitrators may not strictly follow the law. Previous rulings often can’t be used to predict outcomes.
- Arbitrator neutrality concerns – Critics argue arbitrators feel pressure to favor companies over individuals.
Key Considerations in Arbitration Agreements
If you’re faced with an arbitration clause, are you bound to arbitrate any dispute rather than suing in court? Two key factors determine enforceability:
Valid and Enforceable Contract
Courts will look to see if the overall contract is legally valid – does it have offer, acceptance and consideration. The arbitration clause specifically must show:
- You knowingly and willingly agreed to waive legal rights like a jury trial.
- You had opportunity to consult attorney on what you were agreeing to.
Clauses with these protections make it very difficult to challenge the agreement’s validity.
Scope of the Arbitration Clause
The language will usually be written very broadly to cover “any and all disputes” between the parties. But there are exceptions. For example, recent federal law bans compulsory arbitration of sexual harassment and assault claims.
If your allegations fall clearly outside the clause’s scope, you may be able to pursue litigation despite the agreement. But expect a fight with the other party insisting arbitration is required.
Arbitration Agreements in Employment Contracts
Employment contracts commonly contain mandatory arbitration clauses – estimates indicate they cover over 60 million American workers.
Companies enjoy several benefits from mandatory employment arbitration:
- Caps damages by preventing class actions
- Avoids juries which may favor workers
- Keeps reputation damage confidential
- Less litigation expense
- Company writes arbitration procedures
However, critics argue forced arbitration harms employees’ rights by:
- Removing access to public civil court system
- Blocking employees from joining together in class actions
- Favoring employer who mandates the terms
- Suppressing valid legal claims – only a tiny fraction of employees in arbitration proceedings end up filing claims
With so much at stake, it’s critical employees have an employment law attorney review any binding arbitration agreement presented to them.
Arbitration in Real Estate Agreements
Unlike for employment contracts, arbitration clauses are less common for real estate agreements.
Many real estate agents resist agreeing to arbitrate, preferring to maintain maximum legal options. There are risks if multiple parties are involved.
Ultimately it’s a case-by-case decision whether arbitration makes sense for a real estate transaction. Experienced real estate lawyers can offer guidance based on the specifics of each deal.
When You Need an Arbitration Attorney
Do you need to hire an attorney to represent you in arbitration? Legal counsel is most crucial if:
- You’re concerned about losing important rights and want an advocate in the process.
- You feel overwhelmed putting together your best case without a lawyer’s expertise.
- There is an extreme power imbalance, like an individual versus a large corporation.
- The stakes are high and you want to maximize your chances of the best possible outcome.
An experienced arbitration attorney can fight to protect your rights, negotiate the best terms, put forward your strongest arguments, and help ensure a fair process. They will know the ins and outs of arbitration procedure and what strategies work most effectively.
The scales of justice do not tip easily in arbitration agreements – legal counsel helps even them.
Arbitration agreements offer both pros and cons for resolving legal disputes outside the court system. If you signed one, can you still sue if a problem emerges down the road? The answer depends on the specific agreement language and nature of your allegations. An arbitration attorney can provide invaluable guidance to protect your rights and interests. Before signing on the dotted line of any binding arbitration provision, seek qualified legal advice. Knowledge and preparation are everything when it comes to arbitration.