Solve Disputes While Avoiding Costly Litigation With This Arbitration Agreement Sample
Any business relationship runs the risk of falling into a dispute at some stage. Whether you disagree with your employer, contractor, supplier, or business partner, there will be times when a dispute that can be resolved only via a formal process develops.
Solving business disputes in court can be a costly affair, so many businesspeople opt for an arbitration agreement to avoid ending up in court.
DoNotPay knows how complex legal documents can be and how difficult you may find writing a contract or agreement. We are here to help with an arbitration agreement sample that can help solve your business disputes without the hassle of a court case!
An arbitration agreement forces parties who are in dispute to submit to a formal arbitration process rather than going to court.
It can be a standalone document or a clause inserted into a business contract and is normally agreed upon between:
- Employees and employers
- Business partners
- Retailers and their suppliers
- Principals, contractors, and sub-contractors
As a way to avoid litigation, an arbitration agreement is useful when you need the relationship between you and the other party to carry on after the dispute has been resolved.
As an example, arbitration between business partners could be used to reach a win-win resolution to a dispute that would allow the partners to continue working together. Litigation rarely achieves this, usually resulting in the dissolution of the partnership.
An arbitration agreement can save a business relationship by resolving disputes fairly and with an eye on the future.
An arbitration agreement needs to contain the following clauses and wording:
- Names of the parties to the agreement
- Date and duration of the agreement
- Contract or agreement to which the arbitration agreement is an addendum
- Arbitration agreement and litigation waiver
- Arbitration procedure
- Choice of arbitrator
- Acceptance of arbitration verdict
- Costs of arbitration
- Governing law
All the parties to the agreement should insert their:
- Full names
- Contact details
The date of signature and the commencement date of the agreement—if they are different—should be noted, as well as the document’s validity period. If the agreement is an addendum to a separate contract, the term should be the same as the contract term.
The arbitration agreement should name the contract or agreement to which it refers, and a copy of said contract should be attached.
This clause states that the parties agree to submit to arbitration of disputes instead of resorting to litigation. It can be phrased as follows: “If the parties enter into a dispute over the execution of the attached contract, both parties agree to forego their right to litigate the dispute in court and instead will agree to a process of binding arbitration to resolve the dispute.”
The exact process of arbitration is set out in this clause and can be written as follows: “The Licensor and the Licensee must first attempt to resolve any and all disputes amicably in the best interests of both parties.
Any dispute that cannot be resolved amicably shall be resolved through [choose one option]:
- Court litigation: disputes arising from this agreement shall be resolved in the courts of the State of [insert name of state]
- Binding arbitration in compliance with American Arbitration Association rules
- Mediation followed by binding arbitration”
Both parties should agree on the arbitrator, and this clause can be worded as follows: “The parties will agree on one arbitrator to conduct the arbitration. If the parties cannot agree on the appointment of an arbitrator within twenty days of the beginning of arbitration to resolve a dispute, the American Arbitration Association will select an arbitrator pursuant to the terms of this agreement.”
The arbitrator’s verdict must be accepted by both parties, as follows: “The parties agree to abide by any conclusion the arbitrator reaches pursuant to the dispute and, further, to accept any award granted by the arbitrator pursuant to the dispute under arbitration.”
You should define how any arbitration costs are to be split with wording such as: “The parties will share equally any costs of arbitration unless otherwise directed by the arbitrator. The parties are responsible for their own litigation fees.”
In arbitration cases between an employer and an employee, the employer is required to cover the arbitration costs.
The agreement should stipulate the state legislation under which the agreement is made. Acceptable wording could be: “The laws of the State of [insert state] are applicable throughout the arbitration.”
Once you have drafted the arbitration agreement, all the parties concerned should sign it, and you should have the document notarized to give it legal weight.
Using this sample should allow you to set up an arbitration agreement that avoids costly litigation and allows your business relationship to survive.
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