What Is an Arbitration Clause?
An arbitration clause sends disputes to a private arbitrator instead of a judge. It often comes with a class action waiver.
An arbitration clause is a contract term requiring disputes to be resolved by a private arbitrator rather than in court. In consumer and employment contracts, it usually requires individual arbitration and is paired with a class action waiver.
Why it matters to you
Arbitration clauses shape who can be part of a class action. If you agreed to one, you may be left out of a class or have your case moved out of court into arbitration. That is why some settlements cover only a subset of a company's customers, and why the class definition in a notice is worth reading closely.
How arbitration differs from court
- ✓A private arbitrator decides the case instead of a judge or jury
- ✓Proceedings are usually private, with limited public records
- ✓Pretrial discovery is typically narrower
- ✓Grounds to appeal an award are very limited
- ✓Fees are set by the arbitration provider's rules, and companies often pay much of the cost in consumer cases
In the US, the Federal Arbitration Act makes most arbitration agreements enforceable. Courts can still refuse to enforce a clause that was not properly agreed to or that is unconscionable under state contract law. Some claims are carved out by statute, such as certain sexual harassment and sexual assault claims under a 2022 federal law.
A simple example
A customer sues their phone carrier over a fee. The carrier points to an arbitration clause in the service agreement, and the court sends the case to individual arbitration. A separate settlement over the same fee covers only customers whose contracts did not include the clause.
Where to look: arbitration clauses are usually near the end of terms of service or a cardholder agreement, under a heading like "Dispute Resolution" or "Arbitration Agreement." Many are printed in capital letters at the top of the terms, too. They often name an arbitration provider and explain fee rules, small claims court exceptions, and any opt-out window.
Related terms
Read this alongside class action waiver and mass arbitration, which is how many consumers respond to these clauses.
Settlements still happen even in industries full of arbitration clauses. SettleScout watches for them and tells you when one matches a company you use.
Frequently Asked Questions
Is an arbitration clause legal?
Generally yes in the US, under the Federal Arbitration Act. Courts may refuse to enforce a specific clause if it was not validly agreed to or is unconscionable under state law.
Can I still join a class action if I agreed to arbitration?
Often not, unless the class definition includes you or the company waives arbitration as part of a settlement. Read the notice's class definition.
Can I opt out of an arbitration clause?
Some contracts allow it within a limited time after you sign up, typically by sending written notice. Check your terms for an opt-out provision.
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