What are the best practices for drafting an arbitration agreement?

2 Define the scope and rules of arbitration

The arbitration agreement should clearly define the scope and rules of arbitration, such as what types of disputes are covered, what remedies are available, and what procedures will be followed. The agreement should also indicate whether the arbitration will be voluntary or mandatory, and whether the parties will waive their right to sue in court or participate in class actions. The agreement should comply with the applicable laws and regulations, such as the Federal Arbitration Act, the National Labor Relations Act, and the state laws governing arbitration.

3 Ensure mutual consent and consideration

The arbitration agreement should be based on mutual consent and consideration, meaning that both parties agree to arbitrate and receive something of value in exchange. The agreement should be written in plain language, and presented in a conspicuous and separate document, not buried in a handbook or a fine print. The agreement should also give the employee a reasonable opportunity to review and accept or reject the agreement, and provide an opt-out clause if the arbitration is mandatory. The agreement should not be coercive, unfair, or one-sided, as that could invalidate it.

4 Protect confidentiality and privacy

One of the benefits of arbitration is that it can protect the confidentiality and privacy of both parties, especially when dealing with sensitive or personal matters. The arbitration agreement should state whether the arbitration proceedings and the arbitrator's decision will be confidential, and what exceptions or limitations apply. The agreement should also address how the parties will handle any documents, evidence, or information related to the arbitration, and whether they will agree to a non-disclosure or non-disparagement clause.

5 Provide for arbitration costs and fees

The arbitration agreement should provide for the allocation of arbitration costs and fees, such as the arbitrator's fees, the administrative fees, the attorney's fees, and the witness fees. The agreement should follow the principle of fee-shifting, meaning that the prevailing party can recover its reasonable costs and fees from the losing party, unless otherwise agreed or prohibited by law. The agreement should also ensure that the employee does not bear any excessive or prohibitive costs or fees that would deter them from pursuing their rights.

6 Review and update the agreement regularly

The arbitration agreement should be reviewed and updated regularly, to reflect any changes in the law, the business, or the relationship between the parties. The agreement should also include a severability clause, which means that if any part of the agreement is found to be invalid or unenforceable, the rest of the agreement will remain in effect. The agreement should also specify how any disputes or challenges regarding the validity or enforceability of the agreement will be resolved, such as by a court or by an arbitrator.