An arbitration agreement is a provision in a contract or a separate agreement that requires disputes to be resolved through private arbitration rather than in court. These agreements frequently appear in employment documents, consumer transactions, service contracts, and business agreements.
By entering into an arbitration agreement, parties decide in advance how future disputes will be addressed and resolved through a specific forum outside a public trial, like arbitration or mediation. Next, it is important to understand how arbitration differs from traditional court proceedings.
How Is Arbitration Different from Going to Court?
Arbitration removes a dispute from the public court system and places it before a neutral arbitrator in a private proceeding. The arbitrator’s decision is binding, and appeals are allowed only on very restrictive grounds.
Compared to a traditional lawsuit, arbitration is often less formal, moves more quickly, and keeps the details of the dispute out of the public record. A properly drafted arbitration agreement will generally answer key issues such as the following:
- Which disputes does the agreement cover?
- Who selects and pays the arbitrator?
- What are the rules and location for the hearing?
- Is the decision legally binding?
- How are costs and attorney fees divided?
These details directly impact your potential expenses and your control over the process. For example, arbitration may reduce court costs but could involve significant arbitrator and administrative fees. Reviewing these terms before signing helps you understand what you may be giving up, such as your right to a jury trial, and what financial commitments you might incur.
What Makes an Arbitration Agreement Enforceable?
Courts in Michigan generally enforce arbitration agreements when both parties clearly agreed to the terms. Under the Michigan Uniform Arbitration Act, MCL 691.1686, an agreement to arbitrate is valid, enforceable, and irrevocable except on grounds that would let you void any contract, such as fraud or duress. Federal law applies similar rules to agreements that touch interstate commerce. Florida has an Arbitration Act as well, Chapter 682 of the Florida Statutes.
What Should You Weigh Before Signing an Arbitration Agreement?
Agreeing to arbitrate carries real upsides and real costs. You should carefully weigh these factors before you sign:
- Faster resolution than most court cases
- Lower upfront cost in many disputes
- Greater privacy than a public trial
- Limited ability to appeal a decision
- Less formal rules for sharing evidence
A quick, private process appeals to many people, but the limited right to appeal means a flawed decision can be virtually impossible to undo. Plus, arbitrations can be very expensive, as you have to compensate the arbitrator(s) and, in many cases, an organization that administers the matter, like the American Arbitration Association or JAMS. Looking at how these trade-offs fit your specific contract helps you make a choice you can live with.
Can a Court Refuse to Enforce One?
Sometimes, yes. A judge may decline to enforce a clause that was signed under fraud or coercion, that buries wildly one-sided terms in boilerplate adhesion contracts, or that does not actually cover the dispute at hand. Whether any of those apply depends on the wording of your agreement and the facts of how you signed it.
Get Help Reviewing Your Arbitration Agreement
If you have questions about an arbitration agreement or are involved in a dispute governed by one, August Law, can evaluate the agreement, clarify its terms, and help you understand your legal options.
Understand your agreement before acting to make informed choices and protect your interests. Contact us online to review your arbitration agreement and discuss next steps.