What is an Arbitration Agreement?

An arbitration agreement is important to understand as it may affect your rights.

Read all about the details here.

Introduction

There is a very high chance that, at some point in your life, you have encountered an arbitration agreement – whether you realized it or not. With credit card agreements, software licensing, and any other contractual agreement, you are likely to encounter an arbitration clause. Sometimes an employment agreement can even contain an arbitration clause. You need the job, so do you sign it? Once you agree, you are agreeing to arbitration, which can impact your legal rights should a dispute arise.

It may seem like no big deal at the time – until you need to take legal action. So, having an idea of what arbitration is and how it relates to your rights is important.

What is Arbitration?  

In a general sense, arbitration involves resolving a dispute outside of court. It is similar to the process of a court case but doesn’t involve the protections that you have with the justice system. There are two parties, often lawyers, information (like discovery) is exchanged between the two, and there is even a hearing where witnesses and testimony may be provided. But rather than a judge or jury, it is an arbitrator who makes the final decision.

An arbitrator is an attorney who has been in practice for at least a few years. This person is usually agreed upon by both parties. And the meetings will typically be handled in a conference room type setting rather than a courtroom.

What is an Arbitration Agreement?

An arbitration agreement is one in which the parties agree to arbitrate a dispute rather than take legal action. They are often put in a contract as an as-if type of situation. And they may be found in the back pages of an employee handbook that no one ever reads. Most of the time a second thought isn’t given because very few people foresee trouble ahead when they sign a contract. Unfortunately, though, it can happen.

The contracts contain what is known as an arbitration clause. It will read that any dispute that arises will be handled through binding arbitration. Usually, this is for all general disputes, though some contracts will gear it only towards certain situations.

All arbitration agreements should spill out the rules about how the arbitration should be handled and how the arbitrator will be selected.

Are There Benefits to Arbitration? What are the Cons?

Believe it or not, there can be some benefits to arbitration – though it often comes down to who wants to have the upper hand. Remember, when you agree to arbitration, you are giving up some of your legal rights. Let’s take a look at a few of the pros of opting for arbitration.

• Cost-Effective. Arbitration cases usually happen faster – and resolve faster. That means that there are often fewer legal fees and attorney fees than there would be if they were handled in the court system.
• Handled Privately. Court records are public records. But handling everything through arbitration means that it is all done so quietly – without public knowledge. This keeps your matters private.
• Choice of Arbitrator. You get to choose your arbitrator. Well, one that both parties agree on. This is different from the legal system in which a judge is appointed.

Seems like a lot of benefits? Maybe. But let’s take a look at the downside of arbitration agreements.

• Limited Action. In a court of law, you have certain rights – including certain rights to obtain information that can help your case. Things don’t work that way in arbitration. You may only have a limited right to obtain the information that you need.
• Binding Decision. An arbitrator’s decision is often binding. This means that if you aren’t happy with the outcome, you cannot appeal it nor can you open up a legal case. The arbitrator’s decision is final.
• Agreement Before a Dispute. Most arbitration agreements have to be signed before the dispute arises. You never know what situation may come about – or if you’d prefer to arbitrate it or file a lawsuit. But if you have already agreed to arbitration, you have given up your legal rights.
• Biased Action. Most contracts are biased toward the one who created the contract. Therefore, if you are signing a contract with an arbitration clause, it could be in favor of the initiating party.

Mandatory Arbitration Agreements and California Law

It has been a common practice for employers in California to require employees to sign an arbitration agreement as a condition of their employment. This meant that any claims about harassment, wage issues, and discrimination were forced into arbitration rather than the courtroom.

However, as of January 1, 2020, a law was put into place that states California employers can no longer make it mandatory that employees sign the arbitration agreement.

There are many different pieces of legislation surrounding this practice, both at the state and the federal level. Should you find yourself facing this situation, it is a good idea to hire an attorney to review your case. 

Should You Sign an Arbitration Agreement?

Always read your documents carefully.

Signing an arbitration agreement can limit your ability to take legal action, although it will keep costs low and it keeps any disputes private. It is important that you read through contracts carefully and any of those with an arbitration agreement, you should try to reject or negotiate if possible.

Getting the professional legal opinion of an attorney is a wise step. It may open your eyes up to things you may not have considered – and it can benefit you in the future should there be a dispute.

Further, if you ever find yourself in an arbitration case, it is important to seek legal representation as many times, the other party already has the upper hand. Protecting the rights that you do still have is crucial – especially since the outcome is binding. If you are worried about your rights, going up against a big corporation, or concerned about the potential outcome – give yourself the best chance of coming out on top by hiring an attorney.