Arbitration Clause
What it means
An arbitration clause sends disputes to a private arbitrator instead of a court. Signing it generally waives the right to sue in court and, in most cases, the right to a jury trial.
Arbitration can genuinely be faster and less formal than litigation, with the added benefit of privacy — the proceedings and the outcome are not public record. For a business that would rather not have a dispute searchable, that is a real advantage.
The trade-offs are equally real. Arbitrators' fees are paid by the parties, so filing costs can exceed those of a court claim, which matters most for smaller disputes. Discovery is usually limited, which cuts both ways depending on who holds the evidence. And arbitration awards are very difficult to appeal, even where the arbitrator got something plainly wrong — finality is the point, and it is not always your friend.
Read the mechanics. Who selects the arbitrator, and from which panel? Which rules apply? Where does it take place — an arbitration seated across the country carries the same travel problem as an inconvenient court venue. Who bears the costs, and is there a loser-pays provision?
Pay particular attention to class action waivers, which frequently accompany arbitration clauses, and to whether the obligation is mutual. A clause requiring you to arbitrate while the other side retains the right to go to court for the claims it is most likely to bring — typically unpaid fees or IP infringement — is one-sided in a way that is easy to miss.
Why it matters for your business
For a small business, the filing fee can make a modest claim uneconomic to pursue at all. The clause that looks like a procedural detail can quietly decide whether a $15,000 dispute is worth chasing.
See it in action
ContractClerk flags mandatory arbitration, notes whether the obligation is mutual, and points out class action waivers and cost-shifting provisions attached to it.
Related terms
- Governing Law — This clause sets the cost floor for enforcing anything else in the contract.
- Liquidated Damages — This is a number you agree to owe before anything has gone wrong.
- Severability — Severability quietly determines whether an overbroad restriction against you disappears or merely shrinks.
Is there an arbitration clause clause in your contract?
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Review your contract free →This is general information about how arbitration clause clauses usually work. It is not legal advice, and how a clause applies depends on the rest of the document and on where you are. For a high-stakes agreement, talk to an attorney.