mandatory arbitration
Definition
Mandatory arbitration is a clause in a contract that forces both parties to resolve any disputes through a private arbitrator instead of going to court. The arbitrator acts like a private judge who listens to both sides and makes a binding decision, meaning you generally cannot appeal it or take the matter to a regular courthouse afterward.
Example
You sign up for a payment processing service, and buried in the terms of service is a mandatory arbitration clause, so when they overcharge your account, you cannot sue them in court and must instead go through their designated arbitration process.
Watch Out
These clauses often also include a class action waiver, which means you cannot team up with other affected customers to fight a problem together, leaving you to handle disputes entirely on your own.
See which terms appear in your contract?
This definition is for informational purposes only and does not constitute legal advice. Please consult with a licensed attorney for legal guidance.