Are contract arbitration agreements enforceable?

Many business contracts, including employer-employee agreements, contain a built-in arbitration clause in the event that a dispute arises between the parties. Arbitration is one form of alternative dispute resolution, the objective of which is to avoid costly and time-consuming litigation if the parties cannot agree on the matter.

Some of the claimed advantages of arbitration compared to going to court are that it is less expensive, faster, can give the parties more control over who will hear the dispute, and is enforceable in court. In some ways, arbitration may be likened to a mini-trial, except that there is no jury. Both sides get to present their side of the dispute to the arbitrator or arbitrators, who then issue a final decision that is binding on both sides. The prevailing party can secure a court judgment enforcing the arbitration decision should the other party refused to go along with the decision.

Contract arbitration clauses can be simple – simply stating that disputes will be subject to arbitration – or quite complex, specifying details such as where the arbitration will take place, the rules of arbitration to be used, how the arbitrators are to be selected and how many arbitrators will be used, and how and where to deliver notices of arbitration.

Arbitration clauses in contracts are recognized under Illinois law, specifically in the form of the Uniform Arbitration Act. Ordinarily if an arbitration clause exists in a contract it will be controlling unless one of the parties can successfully challenge the existence or validity of the contract itself.

Including an arbitration clause into an agreement is something that the parties to the contract should carefully consider when drafting it, not only to determine if a different form of dispute resolution would be preferable (for example, mediation), but also whether they wish to use alternative dispute resolution at all. An experienced commercial law attorney can assist in answering these and other questions during the process of negotiating and drafting the agreement.

This post offers only an overview of contract arbitration clauses, and should not be taken as legal advice. If you have questions about alternative dispute resolution contract methods or need specific legal advice, you should communicate them to a licensed attorney.

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