For institutions interested in making use of arbitration, the first step is
to do a thorough review of the costs and benefits of arbitration. Arbitration is
not a panacea, and what may work for one institution's problems may not work in
a different setting.
To ensure that an arbitration mechanism is most likely to be enforceable, an
institution should attempt to make the arbitration system fair and equitable
under the circumstances. Thus, although none of the following specific features
are absolutely required, an institution may wish to consider:
1. Clear notice: The arbitration provision may be prominently featured in the
agreement (bold, capitals, underline) or may be prominently set out against the
other provisions (first, last or some special heading).
2. Clear waiver of rights: The arbitration provision may clearly state the
rights that the individual is giving up in arbitration. The rights waived
generally include, at a minimum, the right to jury trial and ordinary rights of
appeal. Other, specific rights (such as statutory rights) may also be expressly
3. Clear consent: The individual's consent to the arbitration provision may
be separately gathered (as by initials at the point of the agreement calling for
arbitration). With on-line contracts, a separate click on an icon (such as "I
agree," or "I consent") may be used.
4. Reasonable fees: The institution may offer to pay the cost of arbitration,
or may otherwise ensure that the individual's obligation to pay filing fees and
administrative costs of arbitration does not become prohibitively burdensome.
5. Neutral arbitrator: The arbitrator may be chosen from a pool that is not
biased in favor of the institution, using a procedure that gives the individual
some role in the selection of the arbitrator.
6. Fair procedures: The arbitration process may include reasonable ability
for both sides to gather evidence and present their positions. Often, merely
providing that the arbitrator retains discretion to adopt procedures necessary
to establish a fair result will suffice.
7. Fair limits on remedies: The arbitration provision may limit the remedial
power of the arbitrator, but limitations that conflict with statutory rights may
be viewed with particular concern.
8. Balanced application: Although an institution may reserve the right to
institute proceedings against the individual in court (versus an arbitration
system), the reasons for the different treatment, and the reasonable nature of
the treatment, should be apparent.
9. Severability: An arbitration clause may provide that, if some portion of
the arbitration system is held to be unenforceable, the remaining portions of
the system will nevertheless be enforced.
Model arbitration systems are available, and may either be used wholesale by
an institution, or may be used as the basis for adapting an arbitration system
to the particular needs of the institution.
Published August 1, 2005.