What is Arbitration Clause? Plain English Explanation
Definition
An arbitration clause is a provision in a contract that requires disputes to be resolved through private arbitration instead of going to court. Instead of a judge or jury, a neutral third-party arbitrator hears both sides and makes a binding decision.
Why It Matters in Contracts
Arbitration often favors the party that drafted the contract (usually the company), because they may choose the arbitration provider, the process is less transparent than court proceedings, and there is limited ability to appeal. You also typically give up the right to join a class action lawsuit.
Real-World Example
You sign a gym membership with an arbitration clause. The gym charges you for months after you cancelled. Instead of taking them to small claims court, you are forced into arbitration with a provider the gym selected, costing you more in fees than the disputed amount.
What to Watch For
- 🔴Mandatory (not optional) arbitration requirements
- 🔴The company gets to choose the arbitration provider
- 🔴Class action waivers bundled with the arbitration clause
- 🔴Arbitration location set in a distant city
Spot Arbitration Clause Clauses Automatically
Upload your contract and our AI will find arbitration clause provisions and explain how they affect you.
Scan Your Contract NowRelated Terms
Learn More
Disclaimer: This glossary entry is for educational purposes only and does not constitute legal advice. Consult a qualified attorney for guidance on your specific situation.