Question 1

What is the difference between arbitration and litigation?

Accepted Answer

Litigation is the traditional process of resolving disputes in a public court, before a judge (and sometimes a jury), under formal procedural and evidentiary rules, with broad discovery rights and a full menu of appellate options. Arbitration is a private alternative in which the parties agree to submit their dispute to one or more neutral arbitrators who render a binding decision called an award. Arbitration is typically faster, more confidential, and procedurally more flexible than litigation, but it usually offers very limited discovery, no jury, and almost no right of appeal. Cases are heard at hearings rather than trials, decisions are made in writing rather than orally, and the arbitrator's award can be enforced in court under the Federal Arbitration Act. The choice between the two is one of the most consequential dispute-resolution decisions a contract can make.

Question 2

What is the Federal Arbitration Act?

Accepted Answer

The Federal Arbitration Act (FAA), enacted in 1925 and codified at 9 U.S.C. §§ 1-16, is the federal statute that makes written arbitration agreements 'valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.' The FAA preempts state laws that single out arbitration agreements for disfavored treatment, requires courts to stay litigation and compel arbitration when a valid arbitration agreement exists, and provides streamlined procedures for confirming, vacating, and modifying arbitration awards. The U.S. Supreme Court has interpreted the FAA expansively over the past several decades, repeatedly upholding class action waivers, delegation clauses, and consumer and employment arbitration agreements. The FAA is the primary reason arbitration agreements have become so widespread in American commerce.

Question 3

What are AAA and JAMS, and how do I choose between them?

Accepted Answer

The American Arbitration Association (AAA) and JAMS (originally Judicial Arbitration and Mediation Services) are the two largest private arbitration providers in the United States. AAA is the older and larger organization, with a broader roster of arbitrators and lower administrative fees, and it publishes specialized rules for commercial, employment, consumer, construction, and international disputes. JAMS positions itself as a higher-end provider with a smaller but more selective roster (many of its arbitrators are retired judges) and tends to be used in larger commercial cases. Both providers have detailed rules of procedure that the parties can incorporate by reference into the arbitration agreement. The choice between them often comes down to cost, the type of dispute, the arbitrator pool, and which provider's rules better fit the parties' needs. Other respected providers include the International Centre for Dispute Resolution (ICDR, AAA's international arm), CPR Institute, and FedArb.

Question 4

Are class action waivers in arbitration agreements enforceable?

Accepted Answer

Yes, in almost all situations. The U.S. Supreme Court held in AT&T Mobility v. Concepcion (2011) that the FAA preempts state laws that prohibit class action waivers in consumer arbitration agreements, and in Epic Systems v. Lewis (2018) that class action waivers in employment arbitration agreements do not violate the National Labor Relations Act. The result is that a properly drafted class action waiver requires each individual claimant to arbitrate on a one-on-one basis instead of joining a class or collective action. There are two narrow exceptions: (1) the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2022 invalidates pre-dispute arbitration agreements and class waivers for sexual assault and sexual harassment claims, and (2) some state courts will refuse to enforce class waivers if they are unconscionable in formation, though this exception is narrowing under FAA preemption.

Question 5

Can an employer require employees to sign an arbitration agreement?

Accepted Answer

Yes, in most states an employer can require an arbitration agreement as a condition of employment or continued employment, and the U.S. Supreme Court has repeatedly upheld these mandatory employment arbitration agreements under the FAA. A handful of states (most notably California, before SB 707 was struck down by the Ninth Circuit, and New York for sexual harassment claims) have tried to ban or limit mandatory arbitration in the employment context, but most of these state-law restrictions have been preempted by the FAA. Employers must still ensure the agreement is conscionable, that it provides for a neutral arbitrator, mutual obligations, reasonable cost allocation, and the same remedies that would be available in court. Federal law now exempts sexual assault and sexual harassment claims from mandatory pre-dispute arbitration, regardless of any agreement to the contrary.

Question 6

Are arbitration agreements enforceable in consumer contracts?

Accepted Answer

Generally yes. Consumer arbitration agreements are routinely enforced when they appear in clickwrap, browsewrap, or shrinkwrap terms of service, provided the consumer had reasonable notice of the terms and a meaningful opportunity to review them. The Supreme Court's decisions in Concepcion and American Express v. Italian Colors broadly upheld consumer arbitration. However, courts will scrutinize consumer arbitration provisions for unconscionability — typically a combination of procedural unconscionability (hidden, take-it-or-leave-it terms in tiny print) and substantive unconscionability (one-sided fee shifting, prohibitive costs, biased arbitrator selection, or strict confidentiality that prevents the consumer from learning about similar claims). A well-drafted consumer arbitration agreement uses plain language, places the clause prominently, provides the consumer with a 30-day opt-out window, splits or caps arbitration fees, and uses a recognized provider like AAA's Consumer Arbitration Rules.

Question 7

How much does arbitration actually cost?

Accepted Answer

Arbitration costs vary widely depending on the provider, the value of the dispute, the complexity of the case, the number of arbitrators (one or three), and the arbitrator's hourly rate. For a typical commercial dispute under AAA rules, expect filing fees of $1,500 to $10,000+, arbitrator compensation of $400 to $1,500 per hour, and case management fees on top. A three-arbitrator panel for a complex dispute can easily cost $50,000 to $200,000 or more before either party's legal fees. Consumer and employment arbitration providers cap or shift most costs onto the business under their rules — AAA's Consumer Rules cap consumer fees at $200 and require the business to pay essentially everything else. Despite the headline costs, arbitration is usually still cheaper than full litigation because the process is shorter, discovery is limited, and there is no appeal, which means total legal fees are lower.

Question 8

Can an arbitration award be appealed?

Accepted Answer

Almost never on the merits. Section 10 of the FAA allows a court to vacate an arbitration award only on very narrow grounds: corruption, fraud, or undue means in obtaining the award; evident partiality or corruption of an arbitrator; arbitrator misconduct that prejudiced a party (such as refusing to hear material evidence); or the arbitrator exceeded their powers or so imperfectly executed them that no mutual, final, and definite award was made. Mistakes of law or fact, however serious, are not grounds for vacatur. Some states (like California and Texas) allow parties to contractually expand the grounds for judicial review, but the Supreme Court held in Hall Street v. Mattel (2008) that parties cannot expand the FAA's vacatur grounds in federal court. The practical result is that arbitration awards are extraordinarily difficult to overturn, which is both the principal benefit (finality) and the principal risk (no second chance) of arbitration.

Question 9

What is a delegation clause?

Accepted Answer

A delegation clause is a provision in an arbitration agreement that gives the arbitrator — rather than a court — the authority to decide threshold questions of arbitrability, such as whether the arbitration agreement was properly formed, whether it covers the dispute in question, and whether any of its provisions are unconscionable. The Supreme Court has held in cases like Rent-A-Center v. Jackson (2010) that delegation clauses are enforceable as long as the delegation language itself is clear and unmistakable. Delegation clauses are powerful because they short-circuit the usual gatekeeping role of courts and force most disputes about the agreement straight into arbitration. Most modern arbitration agreements include explicit delegation language, often by incorporating the AAA or JAMS rules, which themselves delegate arbitrability questions to the arbitrator.

Question 10

What makes an arbitration agreement unenforceable?

Accepted Answer

Even though courts strongly favor arbitration under the FAA, an arbitration agreement can still be invalidated under generally applicable contract defenses such as fraud in the inducement, duress, mutual mistake, lack of consideration, or unconscionability. Unconscionability is the most common challenge: courts will refuse to enforce an arbitration agreement that is both procedurally unconscionable (oppressive or surprising in formation, such as buried in dense fine print with no opportunity to negotiate) and substantively unconscionable (one-sided in its terms, such as requiring only the consumer to arbitrate while the business retains the right to litigate, imposing unaffordable fees on the weaker party, or limiting remedies that would otherwise be available). Forum-selection clauses requiring arbitration in a distant or expensive location and aggressive confidentiality requirements that hide systemic claims from public view can also tilt courts toward finding unconscionability.

Question 11

How is arbitration started after a dispute arises?

Accepted Answer

After a dispute arises, the party seeking arbitration files a Demand for Arbitration with the agreed-upon provider (AAA, JAMS, or another) and pays the filing fee. The Demand identifies the parties, the dispute, the relief sought, and the arbitration agreement. The provider then notifies the other party, which typically has 14 to 30 days to file an Answering Statement and any counterclaims. The provider sends a list of arbitrator candidates, the parties strike names according to the rules, and an arbitrator is appointed. From there, the arbitrator schedules a preliminary hearing to set a procedural schedule covering discovery, motions, and the merits hearing. A typical commercial arbitration takes 9 to 18 months from demand to final award, compared to 2 to 5 years for comparable litigation.

Question 12

Do arbitration agreements need to be signed?

Accepted Answer

Not always, but a signed agreement is the gold standard. The FAA requires arbitration agreements to be 'in writing,' but courts have routinely enforced arbitration provisions accepted through clickwrap, browsewrap, employment handbooks, terms-of-service updates, and even continued employment after notice of the new policy. The key question is whether the party opposing arbitration had reasonable notice of the arbitration provision and manifested assent to it. Best practice is to obtain a signature (electronic or wet) on a standalone arbitration agreement or a clearly disclosed clickwrap acceptance, retain a record of the assent and the version of the agreement that was accepted, and avoid burying the arbitration clause in the middle of unrelated terms. Courts are increasingly skeptical of pure browsewrap acceptance, especially for consumer arbitration.

Question 13

What happens if I file a lawsuit despite signing an arbitration agreement?

Accepted Answer

If you signed a valid arbitration agreement and then file a lawsuit covered by that agreement, the other side will almost certainly file a motion to compel arbitration and stay the litigation. Under Section 3 of the FAA, the court must stay the lawsuit if it finds that the dispute is referable to arbitration under a written agreement. The court will examine whether a valid arbitration agreement exists and whether your claims fall within its scope, but if there is a delegation clause those questions will go to the arbitrator instead. If the court grants the motion, the lawsuit is paused (and often dismissed) and you must pursue the claim in arbitration. Filing in court anyway is rarely strategic — it usually just adds delay and expense — unless you have a strong argument that the arbitration agreement is unenforceable or that your claim falls outside its scope (such as a sexual harassment claim covered by the 2022 federal carve-out).

Feature	Arbitration	Litigation
Decision-maker	Private arbitrator(s) chosen by parties	Judge and/or jury assigned by court
Privacy	Confidential proceedings and awards	Public docket and hearings
Discovery	Limited; arbitrator-controlled	Broad under FRCP/state rules
Speed	9-18 months typical	2-5 years typical
Appeal	Almost none (FAA Sec. 10 only)	Full appellate review available
Class actions	Usually waived	Available under Rule 23
Cost structure	Filing + arbitrator hourly rates	Court fees + attorney time
Enforcement	Confirmed as judgment under FAA	Direct judgment of the court

Free Arbitration Agreement Forms

What Is an Arbitration Agreement?

Faster Resolution

Confidential Process

Final and Binding

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Arbitration Agreement

Section 1: Parties

Section 2: Scope of Arbitration

Section 3: Rules and Provider

Section 4: Class Action Waiver

Section 5: Delegation

Section 6: Execution

Types of Arbitration Agreements

Standalone Arbitration Agreement

Arbitration Clause (Embedded)

Employment Arbitration Agreement

Consumer Arbitration Agreement

Commercial Arbitration Agreement

Class Action Waiver

Mandatory Arbitration Agreement

Voluntary Arbitration Agreement

International Arbitration Agreement

Arbitration vs Litigation

How to Create an Arbitration Agreement

Define the scope of disputes covered

Choose the arbitration provider and rules

Specify the seat and governing law

Decide on arbitrator selection

Add a class action waiver and delegation clause

Allocate costs and address remedies

Execute and provide an opt-out (consumer/employment)

Key Components

Scope clause

Rules incorporation

Seat and venue

Governing law

Arbitrator selection

Class action waiver

Delegation clause

Cost allocation

Confidentiality

Severability

The Federal Arbitration Act

AAA, JAMS & Other Providers

American Arbitration Association (AAA)

JAMS

ICDR

CPR Institute

FINRA Dispute Resolution

ICC International Court of Arbitration

Legal Requirements

Sample Arbitration Agreement

ARBITRATION AGREEMENT

Frequently Asked Questions

Official Resources

Create your Arbitration Agreement in under 10 minutes.