Odds are, you’ve agreed to dozens of arbitration clauses. There is a myriad of reasons why big business love them, and some of those are likely benefits for you as well.
What Is Arbitration?
Arbitration is a private way to settle disputes. You and the other party pick a neutral arbitrator, often someone with industry knowledge, to hear both sides. After a short process, that arbitrator makes a binding decision. It’s not a trial, and the sessions happen outside a public courthouse.
What Makes the Clause Enforceable
Most commercial arbitration clauses in contracts touching interstate commerce are governed by the Federal Arbitration Act, 9 U.S.C. § 1 and following, which makes a written arbitration agreement valid, irrevocable, and enforceable save on grounds that exist at law or in equity for the revocation of any contract. The FAA preempts state rules that single out arbitration agreements for disfavoured treatment, which is why state attempts to limit arbitration have repeatedly failed in the courts. California has its own arbitration act at Cal. Code Civ. Proc. § 1280 and following, and parties can choose it, but the FAA usually supplies the enforceability floor.
Why Include an Arbitration Clause?
Saves Time
Lawsuits can stretch on for months or even years. Arbitration often wraps up faster and spares you the slog of court hearings.
Reduces Costs
Legal fees grow when disputes drag on. Arbitration can keep costs in check by streamlining the process.
Protects Privacy
Courtrooms are open to the public, which can expose details about your code, finances, or trade secrets. Arbitration keeps information behind closed doors.
Industry Insight
You can choose an arbitrator who knows your tech field. This lowers the risk of having to explain complex jargon to a judge with little technical background.
Common Concerns
“What if I don’t trust a single arbitrator?”
You can specify that each side picks one arbitrator, and those arbitrators pick a third. This creates balance.
“Won’t arbitration mean I lose my right to appeal?”
Appeals in arbitration are rare, but that can be good news if you value certainty. Once you get a result, you can move on.
“Does it look unfriendly to add this clause?”
Not usually. Many tech companies prefer arbitration because it’s a straightforward way to solve conflicts. Adding it shows you plan ahead.
Employment Arbitration Is a Different Question
Do not reuse a commercial arbitration clause in an employment agreement without adjusting it.
California enacted AB 51 in 2019, codified at Cal. Lab. Code § 432.6 and Cal. Gov. Code § 12953, to prohibit employers from requiring arbitration of FEHA and Labor Code claims as a condition of employment. The Ninth Circuit held in Chamber of Commerce v. Bonta (9th Cir. 2023) 62 F.4th 473 that the FAA preempts AB 51 as applied to arbitration agreements covered by the FAA, and its enforcement is enjoined; the statute was never enforced and remains on the books, so it could still reach the narrow class of agreements outside the FAA. Mandatory employment arbitration agreements remain enforceable in California, but on conditions.
Those conditions come from Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83. For claims of unwaivable statutory rights, an employment arbitration agreement must provide for a neutral arbitrator, adequate discovery, a written award sufficient for judicial review, all relief that would be available in court, and it must not require the employee to bear costs or arbitrator fees they would not bear in court. An agreement that is both procedurally and substantively unconscionable is unenforceable, and one-sided clauses are the usual failure point. Cal. Code Civ. Proc. § 1281.98 adds a practical rule with teeth: an employer who fails to pay arbitration fees within thirty days of the due date is in material breach and default, waives the right to compel the employee to continue in that arbitration, and the employee may withdraw the claim to court, petition to compel payment, or pay the fees and recover them, with sanctions under § 1281.99. The California Supreme Court held in Hohenshelt v. Superior Court (Aug. 11, 2025, S284498) that the rule is not preempted by the FAA but is not automatic either: a court must allow relief from forfeiture for a late payment that was not wilful, grossly negligent or fraudulent, such as a good-faith billing mistake. The deadline is real, but one good-faith slip does not by itself end the arbitration.
One category is carved out entirely. The federal Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021, 9 U.S.C. §§ 401 to 402, gives a person asserting a sexual assault or sexual harassment claim the option to void a pre-dispute arbitration agreement and a pre-dispute joint-action waiver as to that claim. The election belongs to the claimant (or a named class representative), and the clause cannot override it. This carve-out is written into the FAA itself, which is why it survives where AB 51 did not.
Representative claims under the Private Attorneys General Act are their own question: Viking River Cruises, Inc. v. Moriana (2022) 596 U.S. 639 allows an employer to compel arbitration of the employee’s individual PAGA claim, and Adolph v. Uber Technologies, Inc. (2023) 14 Cal.5th 1104 holds that the employee keeps standing to pursue the representative claims in court while the individual claim is arbitrated.
Tips for Drafting
Be Clear and Direct
State in your contract that “any dispute will be settled by arbitration” and name the rules or organization you plan to use.
Mention Location
Pick where the arbitration will happen, especially if the other party is in another state or country.
Set the Process
Outline the steps for choosing an arbitrator and paying fees. This reduces surprises if a dispute pops up.
Arbitration clauses might feel like extra paperwork at first. Yet they can save you from the stress and expense of a full-scale legal battle. If you include a clear arbitration clause in your tech contracts, you’ll have a safer path to resolve disputes—one that keeps you out of a courtroom and focused on growing your business.
One of the most important things to remember is that arbitration is still a last resort. You do not actually want to end up in arbitration. You want to build your business, your policies, your contracts in a way that prevents disputes and protects your business.