Arbitration Clause

An arbitration clause is a provision in a contract that sends disputes to arbitration, a private process where a neutral arbitrator, not a judge or jury, decides the case. They are common in cell phone, banking, credit card, app, gig work, and employment agreements, usually in the terms you accept when signing up. Arbitration is typically faster and less formal than court, but it is private, has limited appeal rights, and allows less evidence gathering.

The Federal Arbitration Act, 9 U.S.C. 2, makes written arbitration agreements in contracts involving commerce valid, irrevocable, and enforceable, except on grounds that exist at law or in equity for revoking any contract. Courts read that language broadly. In AT&T Mobility v. Concepcion (2011), the Supreme Court held the Act preempted a California rule that treated class action bans in consumer arbitration clauses as unconscionable.

There are exceptions. Since a 2022 amendment to the Act, the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act, people bringing sexual assault or harassment claims can choose court even if they signed an arbitration agreement. Many clauses also let consumers use small claims court or opt out within a short window after signing, often 30 days. And a clause can still be challenged if it was never validly agreed to.

Arbitration clauses are a major reason some people cannot join class actions. Lawyers have responded with "mass arbitration," filing thousands of individual claims at once. Check your contract for an arbitration section before assuming you can sue. See class action versus individual lawsuit, how to sue a company, and the class action waiver entry.