Mandatory Arbitration Clause

Mandatory Arbitration Clause

A mandatory arbitration clause is a provision included in a contract that requires the parties to resolve disputes through arbitration rather than through litigation in court. This clause typically specifies that if a disagreement arises related to the contract, the parties must submit their dispute to an arbitrator, who will make a binding decision.

The inclusion of a mandatory arbitration clause serves to streamline the dispute resolution process, as arbitration is generally quicker and less formal than court proceedings. It also often includes guidelines about how the arbitration process will be conducted, such as the selection of the arbitrator, the rules governing the arbitration, and the location where the arbitration will occur.

For example, in employment contracts, it is common to find mandatory arbitration clauses that require employees to resolve any workplace disputes through arbitration. This means that if an employee believes they have been wrongfully terminated or discriminated against, they cannot file a lawsuit but must instead go through the arbitration process outlined in their contract.

While mandatory arbitration clauses can be beneficial for expediting dispute resolution and reducing legal costs, they may limit the parties’ ability to seek relief through the courts and can sometimes be seen as favoring the stronger party in the contract, particularly in cases of unequal bargaining power.