Arbitration Clause

In one sentence

A contract provision requiring disputes to be resolved by a private arbitrator instead of court.

Plain English

An arbitration clause is a contractual agreement where both parties promise to settle disagreements through arbitration rather than going to court. An arbitrator is a neutral third party who listens to both sides and makes a binding decision. This process is usually faster and more private than a lawsuit, though the parties give up some rights they'd have in court.

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Example

A credit card agreement includes an arbitration clause stating that any dispute between the cardholder and the bank must go to arbitration. If the customer believes they were wrongly charged, they cannot sue in court; instead, they must present their case to an arbitrator.

Used in a sentence

“The employment contract's arbitration clause required the employee to resolve any pay disputes through binding arbitration.”

Related terms

Dispute Resolution

The process and methods parties use to settle disagreements arising from a contract.

Governing Law

The state or jurisdiction whose laws will interpret and enforce a contract.

Jurisdiction

The legal authority of a court to hear and decide a case.

Forum Selection Clause

A contract provision specifying which court or jurisdiction will hear any disputes between the parties.

Notice

A formal written communication required by a contract to inform the other party of something important.

Offer

A proposal to enter into a binding agreement on specific terms.

Acceptance

Agreeing to the exact terms of an offer, creating a binding contract.

Consideration

Something of value exchanged by each party to make a contract binding.

This page is a plain-English reference and is not legal advice. Laws vary by jurisdiction and change over time. For specific situations consult a licensed attorney.