Arbitration Agreement Explained: Downloadable PDF Guide An Intro To Arbitration Agreement Arbitration Agreements are a form of alternative dispute resolution between parties to a contract, of the nature of a private court adjudicating process. Clause 5 of The Arbitration and Conciliation Act 1996 (The Act) provides that ‘an arbitration agreement’ means an ‘arbitration clause’ or an ‘arbitration submission’. The former means a clause by which the parties to an agreement (the ‘contracting parties’) agree that any dispute between them arising out of, or in relation to that agreement, including any question regarding the breach of the agreement, shall be referred to arbitration under the Act. An ‘arbitration submission’ means a contract to submit to arbitration an existing dispute, whether it is contractual or not. If there is no prior arbitration clause, the issue of the jurisdiction of the arbitral tribunal is to be determined on a consideration of the contents, or otherwise, of the arbitration submission. The parties must also be in agreement in respect of the number of arbitrators to be appointed, where none is agreed, the dispute will be referred to one arbitrator. Clause 4 of The Act provides parties with generally a free choice of commercial and legal practitioners as arbitrators to hear the dispute and to decide if one or more of them is to be their Arbitrator. That said, clause 10(1) stipulates that the parties may agree that in the event of a dispute, the arbitral tribunal shall consist of a sole arbitrator . Arbitration is an enquiry between private individuals in respect of a matter which has arisen and which it is necessary or expedient that they should resolve. In that sense it is a dispute resolution mechanism. This definition shows that an arbitration award is ultimately enforceable. For example, clause 10 (a) of The Act, provides that subject to sub-section (2) of this section, an arbitration agreement shall not be invalid merely by reason that the arbitration agreement is in the form of arbitration submission. Clause 18 is perhaps the most important clause in The Act in so far as the jurisdiction of the arbitration tribunal is concerned, because it allows for the parties to refer their dispute to arbitration. The jurisdiction of the arbitration tribunal is provided for within clause 18(1), which states that the subject matter of the arbitration agreement could be the subject of an arbitration agreement notwithstanding that another Court, has concurrent jurisdiction in the matter. In the light of this evidence, it is clear that an arbitration agreement is a private court adjudicating process that is enforceable in the manner provided for under the Act. More importantly, it is a dispute resolution mechanism by which parties agree on the finality of the adjudicating process. That agreement could either be in the form of an arbitration clause or an arbitration submission. A clause or submission must therefore be interpreted in accordance with the provisions of the Act, and within which the contracting parties have a choice of dispute resolution mechanism. Elements of an Arbitration Agreement The elements of a standard arbitration agreement are as follows:A sentence or two identifying that the parties are engaging in a mutual agreement to settle any future disputes by arbitrating through the American Arbitration Association pursuant to the rules and process set forth below. (1) Briefly discuss the arbitration process and clarify that the agreement applies equally to the employer and the employee (2) State that the parties give up their right to trial by jury and also the right to a trial in front of a court (3) Acknowledge that each party is entering into this statement voluntarily and free from duress and coercion (4) Enclose on a separate page the confidentiality requirements of the agreement (5) Specify that the arbitrator has the power and authority to award all damages, remedies and procedural relief available in a court of law (6) Require that the employer provide within 30 days of receipt of any written request by the employee a copy of the following: (a) The current arbitration rules and procedures; (b) A list of suppliers of arbitration services; and (c) The entire text of the arbitration agreement (or a copy thereof) (7) Curbs the rights of the arbitrator by stating that neither party is permitted to file a class or collective action (8) Portrays the arbitration process as non-judicial (9) Provides notice of the time limits to bring a suit and states that if the claim is not filed within the required time frame it will be barred and forever be prohibited (10) Gives the claimant 30 days from the date of the notice to file a written demand for arbitration with the American Arbitration Association and notifies the claimant of the statutory time limits for filing claims with various agencies; and (11) Obliges the employer to provide the employee a copy of the statute(s) and regulation(s) that could be used as the basis for an award of attorney’s fees and lastly, to bar any other recovery of attorney’s fees under a separate provision. Advantages of Arbitration Agreements Arbitration has long been recognized as a mechanism for resolving contractual disputes because it offers a potential advantage over litigation: arbitration is generally quicker to conclude, has the potential to be less costly, and can be confidential. This page discusses several benefits of using arbitration agreements in both domestic and international contexts.Confidentiality.This is particularly important when public disclosure of a dispute may harm the reputation of one of the parties. Arbitration proceedings have traditionally been confidential. Even publicly accessible awards may be difficult to locate, while court filings are usually preserved on the Internet either by the courts themselves or private firms who archive all court filings, which include potentially damaging information. In contrast, an award will generally not be publicly contained in any official database.Speed.As a result of procedural devices such as the "case management conference," where a judge assigns time limits to each remaining step of the proceedings, and the complete elimination of juries in favor of judges and other professionals, civil litigation increasingly has become a slower process. In all likelihood, a case will take more than two years to resolve. In contrast, many experienced arbitrators pride themselves on their ability to move an arbitration along at a quick pace to a final conclusion.Cost.In recent years, some have claimed that arbitration and litigation cost approximately the same amount. However, it has become increasingly clear that the least expensive way to resolve a contract dispute is to bring it to the attention of an experienced arbitrator. When all costs — including fees for filing paperwork, including service-of-process, and clerical work — are taken into consideration, it is a simple fact that court will cost more than arbitration.Enforceability.Since 1925, the Federal Arbitration Act (FAA) has trumped any state laws dealing with the enforcement or invalidation of arbitration agreements in favor of arbitration, provided that the contract in question meets the requirements of a sufficient interstate commerce connection. This is important, since the United States Supreme Court has stated that whether an arbitration agreement is enforceable must be determined solely by federal law. By including an arbitration clause in a contract, provided that a sufficient interstate commerce link exists (which will commonly be found in a license or franchise agreement), the parties can rest assured that the resolution will occur in a neutral forum, free from manipulation by the courts. Drafting an Effective Arbitration Agreement Arbitration agreements should follow the golden rules of good drafting. The first of those golden rules is that a well-drafted contract should be a holistic document that covers all the relevant aspects of the relationship in question. This means an arbitration agreement should be drafted so as to take into account every conceivable issue which might arise in relation to the underlying contract or dispute.The UK Supreme Court, in National Infrastructure Ltd v Lewis Hayden (above), stressed the importance of conducting a thorough cost benefit analysis to determine whether a dispute is suitable for arbitration. In particular, there is no point in the parties agreeing to refer an issue to arbitration if the costs incurred outweigh the benefits which would come from a favourable ruling. This is relevant when it comes to drafting arbitration agreements. A draftee must consider whether the potential disputes likely to arise under the contract are proportionate to the cost of arbitration. For example, the parties should consider the degree of specialization required of the tribunal or the availability of any necessary resources in the arbitration seat.The New York Convention on the Recognition and Enforcement of Arbitral Awards 1958 (the "New York Convention") requires contracting parties to make their arbitration agreements "in writing". Article II of that convention states as follows: "1. Each Contracting State shall recognize an agreement in writing under which the parties undertake to submit to arbitration all or any differences which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not, concerning a subject-matter capable of settlement by arbitration. …. 2. An arbitration clause shall be considered to be in writing if its content is recorded in any form, including in the form of an exchange of statements of claim and defence and of claims for relief, in which the substance of the agreement is recorded."Article II has been given a wide interpretation and is regarded as requiring nothing more than that the intention to arbitrate be in some form of code which can be validated. It does not follow that the arbitration agreement must be contained in a single document. Article II appears to have been interpreted so as to allow agreements to be found in contemporaneous documents. For example, in the case of Spiliada Maritime Corp v Cansulex Ltd [1987] AC 460, it was held that an arbitration agreement in a charterparty could be found in two different documents, provided that they were delivered together, identifying them by reference to each other and that the linked documents contained a clear and unequivocal offer to arbitrate. Common Arbitration Agreement Mistakes A number of mistakes are commonly made in drafting arbitration agreements. Most of them are easily avoidable. Others may simply be the result of a desire to have speedy, accessible language that doesn’t restrict the language to someone with legal training. But treating arbitration agreements with the same care as you would other serious and sensitive legal documents is still important.Mistake: Not having one at all. This is rather obvious, but is nevertheless important. A case can be made that if you don’t have an arbitration agreement, any contract or other interaction you have with customers or employees is subject to any dispute resolution mechanism set forth by statute. If you have an arbitration clause, it will apply because you agreed to it.Mistake: Failing to specify that the arbitration agreement applies to the relevant state or nation (or both). The NAFTA treaty provides that certain types of business disputes cannot be arbitrated in those contexts; don’t make it appear that they can be through a poorly-written arbitration clause.Mistake: Failing to provide a simple, clear statement of agreement. The provisions separate to the paragraph are important, but make sure that the paragraph defining the arbitration procedure as the only binding method to resolve disputes starts off as clearly, simply, and concisely as possible.Mistake: Not specifying that arbitration is binding. An arbitration agreement isn’t always immediately binding on the parties who agree to it , and doesn’t necessarily mean there will be a definitive end to a dispute. Make sure all parties are clear on this point (and are agreeing to a binding determination, and not just a showing of good faith).Mistake: Repeating the same clause over and over. You’re being repetitive and unoriginal if you come up with new wording for a passage that’s already been defined clearly. Use explicit cross-references to save space and time.Mistake: Not going over the agreement with relevant counsel, separately. Have both management and labor examine the arbitration provision individually. Make the necessary changes and stop there; there’s no point in overhauling the document multiple times.Mistake: Using passages borrowed from widely-available templates. Arbitration agreements are tricky things to draft and little problems can be costly. You can waste time and money using a borrowed arbitration agreement — that’s time and money you can hardly afford to waste when dealing with disputes.Mistake: Not checking with the relevant arbitral organization. If you’re bound to certain customs through the American Arbitration Association and have drafted your arbitration agreement without checking with them, you’ve wasted time and money editing a contract that may not even be valid.Mistake: Not explaining the meaning of the arbitration agreement to staff. Staff should know exactly what responsibilities you have concerning the relevant arbitration agreement. It may be too late to realize that the agreement doesn’t mean what you thought it meant. Sample Arbitration Agreement Templates Arbitration agreement templates are generally a convenient way to create a customized and enforceable arbitration agreement without having to prepare one from scratch. It may be as simple as filling in the [BRACKETS] with the required information. Alternatively, it may require additional drafting, but having a sample to use will expedite the process.There are many good arbitration agreement templates that are available as an immediate and free download from the internet. COLPitts provides a generic sample arbitration agreement available as a PDF file. Pinsent Masons offers a sample employment arbitration agreement and a sample commercial arbitration agreement. In Australia, Brad Paden offers a sample arbitration agreement on his law site. Hong Kong Resources has licensed a sample arbitration clause from the International Chamber of Commerce Court of Arbitration. Be sure to update published samples by checking the latest legislation to make sure that it is up to date. Arbitration Legal News And Guides The legal landscape surrounding arbitration agreements is ever-evolving, with numerous developments in recent months. The latest updates from the United States Supreme Court (SCOTUS) and the National Labor Relations Board (NLRB) are particularly relevant to the enforceability and terms of arbitration agreements.On October 29, 2019, SCOTUS heard oral arguments for Lamps Plus, Inc. v. Vilches, 903 F.3d 763 (9th Cir. 2018), a case concerning the enforceability of class arbitration waivers found within arbitration agreements. A class action is a form of legal action in which those affected by the same issue or grievance can sue as a group. In Vilches, that issue or grievance concerned a data breach affecting employees’ tax information. The plaintiff originally brought a class action against their employer alleging that the data breach constituted a misrepresentation by the employer, and the plaintiff was joined by approximately 600 other plaintiffs, all of whom sought to represent a class of similarly situated current and former employees. The employer responded by moving to compel individual arbitration; the district court denied that motion, and the Ninth Circuit Court of Appeals affirmed the district court’s decision. The Supreme Court granted the employer’s request to review the appellate court’s decision.The primary question SCOTUS must decide in this case is whether an arbitrator or the court must decide whether arbitration can proceed as a class action. In 2010, SCOTUS held in Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp., 559 U.S. 662 (2010) , that an arbitrator lacks the power to define a contract to bind the parties to a class and without explicit contractual authority to do so, no class arbitration can occur. Six years later, SCOTUS determined in Oxford Health Plans LLC v. Sutter, 569 U.S. 563 (2013), that an arbitrator could be authorized by the parties’ contract to resolve the issue of class arbitration, even if the arbitrator reached the wrong conclusion. The subsequent question thus became who decides issues of class arbitrability – the arbitrator or the court. The Ninth Circuit determined that the association of class-wide arbitrability with procedural questions meant that a court should determine class-wide arbitrability.In August 2019, the NLRB called into question whether employees may waive their rights to pursue class action lawsuits or class or collective arbitrations in its decision in Cordúa Rest., Inc., 367 N.L.R.B. 157 (2019). In its decision, the NLRB overruled a 2018 decision, Murphy Oil USA, Inc., 361 N.L.R.B. 774 (2014), that plaintiffs and the Board argued interfered with employees’ right to engage in concerted activity. Under the 2018 decision, employers could require employees to give up the right to pursue a class or collective action in the context of an arbitration agreement. The NLRB’s latest decision again makes it lawful for employers to include class or collective action waivers in arbitration agreements. While, as of this writing, the NLRB’s latest policy has not been challenged, it will likely soon find its way to either SCOTUS or the Federal Circuit Court of Appeals.