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Key Facts
- Federal and state: An arbitration clause is a contract provision requiring specified disputes to be decided in arbitration rather than ordinary court litigation.
- Federal level: The Federal Arbitration Act generally makes written arbitration provisions involving commerce enforceable, subject to generally applicable contract defenses and statutory exceptions.
- Contract scope: Wording determines which claims, parties, forum rules, remedies, and threshold questions fall within the clause.
- Federal exception: Federal law permits a person alleging sexual assault or sexual harassment to elect against enforcement of covered predispute arbitration agreements for those disputes.
An arbitration clause is the part of a contract that directs covered disputes to a private decision-maker called an arbitrator. It can replace a court trial for claims within its scope, but it does not eliminate every role for courts.
The clause is a narrower drafting topic within the broader concept of an arbitration agreement. Its consequences depend on the actual language, governing law, and dispute.
What an arbitration clause usually contains
A clause commonly identifies which disputes are covered, the arbitration provider or rules, the number and selection of arbitrators, the location, governing law, allocation of fees, and available remedies. It may also address confidentiality, discovery, remote hearings, or entry of judgment on an award.
The American Arbitration Association’s drafting materials emphasize choices such as arbitrator qualifications, locale, discovery, duration, remedies, fees, and the form of the award. Incorporating institutional rules can supply procedures that the clause does not reproduce.
The Federal Arbitration Act framework
Section 2 of the Federal Arbitration Act provides that a written arbitration provision in a maritime transaction or contract involving commerce is valid, irrevocable, and enforceable. Its savings clause preserves grounds that exist in law or equity for revoking any contract.
That framework generally prevents arbitration agreements from being singled out for disfavored treatment. Ordinary formation and contract defenses may still matter when applied on an even basis.
Whether the FAA applies can depend on the transaction and statutory exclusions. State arbitration law may also operate where it is not displaced, so a national overview cannot resolve every clause.
Scope and gateway questions
A dispute about whether a claim falls within a clause is often called arbitrability. Courts generally decide gateway questions unless the parties clearly and unmistakably delegated a particular question to the arbitrator, subject to governing doctrine and exceptions.
Broad phrases such as “arising out of or relating to” may reach more disputes than language limited to breach of a particular section. Named parties, affiliates, employees, consumers, and nonsignatories can raise separate scope questions.
Class waivers and individualized proceedings
Some arbitration clauses require individual proceedings and waive class or collective procedures. The Supreme Court has repeatedly treated the parties’ contractual basis as central to whether class arbitration is authorized.
A class waiver and an arbitration promise are related but distinct provisions. Severability language may state what happens if one portion cannot be enforced.
A separate article on forced arbitration addresses the policy debate surrounding predispute clauses and unequal bargaining power.
The federal sexual-assault and harassment exception
The Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act became law in 2022. At the election of the person alleging covered conduct, it makes a predispute arbitration agreement or joint-action waiver invalid or unenforceable with respect to a case relating to that dispute.
The statute assigns applicability and enforceability questions under that chapter to a court rather than an arbitrator. It applies to disputes or claims arising or accruing on or after March 3, 2022.
Arbitration does not entirely exclude courts
Courts may address formation, enforcement, stays, compelling arbitration, interim relief, and review of awards within statutory boundaries. Under FAA Section 9, parties can agree that judgment will be entered on an award and seek confirmation in court.
Review is much narrower than a normal appeal from a trial judgment. The FAA specifies limited grounds for vacating or modifying an award.
Why drafting details matter
Ambiguity about covered claims, governing rules, administrator, seat, fees, or delegation can create litigation before arbitration begins. A named arbitrator who becomes unavailable can also complicate the agreed process.
The most reliable reading treats the clause as part of the whole contract, then identifies its scope, procedure, exceptions, and governing federal and state law. The label “arbitration clause” alone does not answer those questions.
