How to Negotiate an Arbitration Clause in Your Contract
Arbitration clauses require disputes to be resolved through a private arbitrator instead of a court. While arbitration can be faster and more confidential, it also limits your options if things go wrong.
What to Negotiate
- Arbitration provider: Specify a reputable provider like AAA (American Arbitration Association) or JAMS. Avoid vague language that lets the other party choose after a dispute arises.
- Cost allocation: Arbitration can be expensive. Negotiate for shared filing fees and arbitrator costs, or request that the losing party bears costs.
- Location: The arbitration venue matters. Push for a location convenient to you, or agree on virtual proceedings for lower-value disputes.
- Scope limitations: Consider carving out certain claims (small claims court, injunctive relief for IP theft) from mandatory arbitration.
- Appeal rights: Standard arbitration offers very limited appeal options. Some providers offer optional appellate procedures if both parties agree.
- Class action waiver: Many arbitration clauses include class action waivers. Understand what you are giving up and whether this is negotiable.
Red Flags
- Arbitration in a distant or inconvenient jurisdiction
- One-sided cost allocation where you bear all fees
- Confidentiality provisions that prevent you from discussing the outcome
- Extremely short statutes of limitation for filing claims
- Clauses allowing the other party to seek injunctive relief in court while you are bound to arbitration
When to Consult a Lawyer
If the contract is high-value or the arbitration clause significantly limits your legal remedies, consider consulting an attorney. This is especially important for employment agreements and consumer contracts where arbitration terms are often non-negotiable without pushback.
This article is for informational purposes only and does not constitute legal advice. Consult a licensed attorney for guidance specific to your situation.