What is Arbitration Agreement?

Arbitration agreements are clauses that specify how two parties will settle a dispute out of court.

In this article, we discuss these agreements in greater depth, discussing the precise details they offer as well as their various pros and cons. Finally, towards the end of the article, we offer our final thoughts on the future of legal agreements.

An Overview of Arbitration Agreement

In this section, we discuss the pieces of information that an arbitration agreement conveys.

To Arbitrate or Not to Arbitrate

While these kinds of agreements can be a separate document, they are most commonly found as clauses in a larger contract between two parties. The main purpose of this clause is to bind both parties to a certain kind of arbitration should any dispute arise.

The most ascetic arbitration agreements will only be a sentence or two and will simply state that all disputes will be submitted to arbitration. This kind of resolution is usually determined before a business relationship is begun, though it can occasionally be implemented after the fact.

In some cases, only certain disputes will require arbitration. In this case, the arbitration agreement might outline which disputes will lead to arbitration and which will lead to litigation. Litigation is the other main form of resolving disputes that entail publicized information and courtroom appearances.

Specialized Information Depending on the Case

Some arbitration agreements are much more in-depth than others depending on how they are drafted. In some cases, businesses might draft a very detailed agreement that spells how to deal with every kind of possible conflict.

This could include everything from who will be the arbitrator as well as how the arbitrator will be chosen. It might even specify the precise environment where the arbitration will be conducted.

Furthermore, some agreements will have totally unique stipulations that depend on the employer and employee. For example, an arbitration agreement between a visual artist and a company might specify that all disputes will be arbitrated at the company’s headquarters in a room where no lawyers can go. Furthermore, perhaps only disputes overpayment will be arbitrated whereas disputes over copyright ownership will be litigated in court.

The Drawbacks of Arbitration Agreements

As you can see, arbitration agreements are not rigid documents but rather flexible enough to adapt to whatever conflict is being anticipated.

This can actually be a negative thing, as one party might experience significant losses after signing a dubiously crafted arbitration agreement. Some companies use expert lawyers to draft a manipulative arbitration agreement. These use tricky language and extensive clauses to control how any disputes are dealt with, often times favoring the employer rather than the employee. These also are usually buried within a longer contract in order to prevent the employee from renegotiating parts of the contract.

For example, imagine an artist who signs a long contract and doesn’t have time to read all the fine print. The company that drafted the agreement might necessitate that conflict stemming from collaborative issues be resolved by an arbitrator who is a friend of the CEO. In this sense, the artist might be fighting an uphill battle should conflict arise during collaboration.

Therefore, if you don’t read all the details of an arbitration agreement, you might risk binding yourself to some undesirable consequence in the future. Some arbitration agreements are so confusingly worded that even reading them does not yield sufficient understanding. In these cases, we recommend hiring a lawyer or enlisting the help of someone savvier when it comes to legal terms.

Shady Employers Forcing Premature Decisions

Additionally, some employers might use arbitration agreements to make employees decide about future conflicts before they are ready to. Some employers might require employees to sign an arbitration agreement as a stipulation for working. Yet, the employee might not know the precise nature of future disputes and thus how he wishes to resolve them.

In this sense, arbitration agreements can confine one party in a business relationship when freedom and liberation are actually desired. For example, a freelance writer might sign an arbitration agreement at the beginning of his career that states that only claims of racism will be arbitrated. All other kinds of disputes will be litigated.

After many years of working for a company, this writer might decide to publish a novel, which leads to fame, monetary success, and disputes over copyright claims. However, the writer might not want to resolve these disputes in court because it would lead to a public trial that could compromise his public reputation and lead to declining sales. This possibility would have been unknown when initially signing the arbitration agreement.

In this sense, arbitration agreements can actually be bad for both parties in a relationship. A freelance writer and company might agree to arbitrate in certain rare situations. This could lead to extensive public litigation should a conflict arise, which could lead to declining sales and a compromised public reputation.

For example, a publishing company might experience declining sales for its other products in addition to the writing that the writer under consideration has published. The writer, on the other hand, might experience a decline in sales for his writing that has been published by other companies.

Thus, arbitration agreements can actually impact parties that aren’t even involved. In this sense, before you draft a binding clause that leads to a certain kind of conflict resolution, make sure you know the consequences of litigation vs. arbitration. It could save you much time and energy.

The Benefits of Arbitration Agreements

Even though there are some noticeable drawbacks to these kinds of agreements, there are also some benefits that are worth noting.

Arbitration agreements can save some parties tons of money by avoiding legal fees. Most arbitration agreements specify that disputes will be resolved in a conference room rather than a courtroom. This allows parties to avoid paying court fees as well as exorbitant lawyer fees. While lawyers are often still used when arbitrating, these kinds of resolutions are often quicker and thus cheaper over time.

Furthermore, arbitration agreements can protect parties in case conflict does arise. For example, when considering the freelance writer and company from our example above, just imagine if the drafted agreement had required arbitration in every dispute. This would have kept future disputes confidential, thus keeping the writers and companies’ reputations and sales stable.

In some cases, arbitration agreements can be so specifically crafted that they empower one party if a dispute arises. For example, an artist might add a section to the agreement stating that all arbitrators must be an artist working in the industry. This could prevent an arbitrator who is biased against the artist from determining a resolution.

On an even more basic level, arbitration agreements are beneficial because they might lead to your hiring. Some businesses are so cautious about their practices that they refuse to hire anyone who doesn’t sign an arbitration agreement. In this sense, signing one of these documents might result in a new job and opportunity for making money. If you can abide by the stipulations of this clause, then you might be able to flourish in a new industry.

It should also be noted that arbitration agreements can be customized to fit the relationship under consideration. While there are some common rules and protocols that the American Arbitration Association recommends, ultimately these kinds of agreements are not as rigid as some legal proceedings that take place in court. This could allow one or more parties to personalize the agreement in certain situations in order to protect themselves even further.

Our Final Thoughts on Arbitration Agreements

We think arbitration agreements are just a fancy way of resolving conflicts out of court.

We think these kinds of documents will become more popular in the coming years as people realize all the inefficiencies associated with settling in court.

Furthermore, we think these kinds of agreements will be digitized as the legal industry seeks to go paperless. Eventually, we think environmental efforts aimed at reversing the negative impacts of deforestation will lead to prohibitions against printing on paper.

We also think these kinds of legal documents will eventually be forged online by artificial intelligence. This would allow these kinds of agreements to be drafted more frequently, as a lawyer would not need to be present. Instead, both parties could sign the agreement over the internet after a robot drafted the precise details.

Furthermore, we think the language that is used in legal documents is often alienating for one or both parties. This can lead to undesirable situations in the future if an agreement is signed out of ignorance.

We anticipate the creation of technology intended to prevent these kinds of outcomes. For example, we can envision a future in which both parties are able to interact with an avatar of the arbitration agreement through some virtual reality simulation. Instead of having to spend long hours plowing through arcane language, business parties will be able to review their arbitration agreement by communicating with it directly.

We think future technology will be able to humanize the world in a way that allows us to interact with it on a more personal level. This means communing with our arbitration agreements as friends and family prior to signing them.

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