What is mandatory arbitration?
When parties to a contract have a disagreement or conflict, we call that a dispute. Arbitration is a form of dispute resolution that is often administered by a private organization, as opposed to a public court system. When parties enter into a contract (like a cloud service agreement), they might agree to use arbitration to settle future disputes rather than filing lawsuits. Whether arbitration is an option for a dispute depends on state and local laws.
Mandatory arbitration describes a provision in a contract that requires both parties to agree to settle disputes using arbitration whenever possible. Organizations like JAMS and the American Arbitration Association provide arbitration services, as well as rules that govern the process (which may be agreed to explicitly in a contract with mandatory arbitration).
How is arbitration different?
Arbitration is a private process where a person or a group of people called arbitrators listen to both sides of a dispute and make a decision. It’s less formal, usually faster, and can be cheaper than going to court. Arbitration proceedings can be kept private and confidential. Despite being less formal, the decision is binding, meaning both parties have to follow it.
Litigation, on the other hand, is the traditional way of resolving disputes through the court system. It’s more formal and involves presenting the case to a judge or jury, who makes the final decision. The parties have a chance to appeal the decision if they disagree with it. Most litigation filings are publicly accessible, though some confidential portions can be redacted.
Sample langauge
Written to work with Common Paper standard agreements.
Add mandatory arbitration (JAMS)
Cloud Service Agreement version: 2.0
Replace the second sentence of Section 12.3 with: “The parties will arbitrate any dispute about this Agreement in the state or county that encompasses the Chosen Courts, in English, and agree to finally settle all such disputes according to the Rules of the Judicial Arbitration and Mediation Service (“JAMS”). To the extent the JAMS streamlined rules are available, they will apply. The arbitral decision may be enforced in any court. To the extent a claim cannot legally be arbitrated (as determined by an arbitrator), the parties will bring the suit, action, or proceeding that cannot be arbitrated in the Chosen Courts and each party irrevocably submits to the exclusive jurisdiction of the Chosen Courts.”
Cloud Service Agreement version: 1.0, 1.1
Replace the second sentence of Section 14.3 with: “The parties will arbitrate any dispute about this Agreement in the state or county that encompasses the Chosen Courts, in English, and agree to finally settle all such disputes according to the Rules of the Judicial Arbitration and Mediation Service (“JAMS”). To the extent the JAMS streamlined rules are available, they will apply. The arbitral decision may be enforced in any court. To the extent a claim cannot legally be arbitrated (as determined by an arbitrator), the parties will bring the suit, action, or proceeding that cannot be arbitrated in the Chosen Courts and each party irrevocably submits to the exclusive jurisdiction of the Chosen Courts.”