United States: Drafting Arbitration Provisions: Tried & True Best Practices

"An ounce of prevention is worth a pound of cure." Benjamin Franklin's statement has reverberated for centuries in a variety of circumstances, and has enjoyed widespread use among attorneys, in particular. This especially holds true for attorneys tasked with drafting agreements or provisions designed, in part, to provide information on the front end that will govern future disputes.

An arbitration provision (or stand-alone agreement) is a perfect example because it is designed to make clear what forum—as between arbitration or a court of law—that parties agree to submit certain disputes to before an applicable dispute arises.

Typically, disputes about arbitration provisions arise after a lawsuit has been filed. The party seeking to enforce the arbitration provisions may be entirely reliant on how the agreement was drafted. Below are a few "best practices" that attorneys can implement when drafting arbitration provisions in order to prevent future headaches.

Emphasize Key Points

One of the first issues a court considers when deciding a motion to compel arbitration is whether the parties agreed to arbitrate the dispute. To ward off potential arguments that a plaintiff did not know he/she was submitting to arbitration or did not know material terms, drafting attorneys should bold, underline, and/or CAPITALIZE material terms.

The goal is to clearly inform the individual to be bound that he/she is agreeing to submit claims to an arbitrational forum. Courts appreciate the embellishment, especially when the agreement is contained in an otherwise lengthy document.

Designate Methods of Acceptance

Additionally, drafters of arbitration provisions should clearly designate the method by which an individual may accept the terms of the agreement. If a signature is all that is required, state whether the signature may be electronic or wet ink—or both, where one is just as effective as the other.

In the employment context, an arbitration agreement—even one unsigned—may be enforceable under the Federal Arbitration Act where an employee's acceptance is expressly made contingent upon beginning or continuing employment. The Eleventh Circuit Court of Appeals has found that an employee accepted the arbitration policy where the policy provided that acceptance of employment or the continuation of employment by an individual shall be deemed to be acceptance," "no signature would be required for the policy to be applicable," and "the policy would be a condition of continued employment." Caley v. Gulfstream Aerospace Corp., 428 F.3d 1359, 1370–75 (11th Cir. 2005).

Limit Number of Arbitration Provisions

Enforceability issues can arise when an individual receives a number of documents as part a transaction or agreement, and one or more of those documents contain an arbitration provision. The risk is that the terms of multiple arbitration provisions will materially differ—or outright conflict— to the point where a court may find that the parties did have a "meeting of the minds" about whether to arbitrate. As a matter of best practice, a drafter should limit the amount of provisions and ensure, at a minimum, that they do not conflict—bonus points if the drafting attorney can incorporate one governing provision by reference into the other provisions.

Consider Including a Delegation Provision

In the context of a motion to compel, a court is tasked with deciding whether an arbitration agreement is valid and enforceable such that it must send the case to an arbitrator. Parties can contract around this, however, and make clear that an arbitrator—and not a judge—should decide these gateway issues through a so-called "delegation provision." A delegation provision is simply an additional, antecedent agreement a party seeking arbitration asks the court to enforce.

A bare-bones delegation provision would read something like as follows: Any claim or dispute, whether in contract, tort, statute or otherwise (including the arbitrability of the claim or dispute) shall be resolved by neutral, binding arbitration and not by a court. A draft would be well-advised to more specifically list what issues qualify as issues of arbitrability.

If a drafting attorney can show that the parties clearly and unmistakably agreed to arbitrate arbitrability, then a court will have no choice but to direct the matter to arbitration. This result not only saves the court time from having to engage in a length analysis about the validity and enforceability of the arbitration provision as a whole, but it also saves the enforcing party time and money that could be directed to more valuable tasks.

While taking the time to tweak arbitration provisions may not appear worthwhile, especially when the agreements are couched in a voluminous agreement with an overall higher degree of significance, that time investment likely will pay off should the provision end up in court. Defense attorneys, judges, and clients will appreciate the ounce of prevention.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.