Checklist · Arbitration

Drafting an Arbitration Clause: A Practical Checklist

9 U.S.C. §§ 1

Type
Checklist
Jurisdiction
National
Date
2024-01-25
Topic
Arbitration

An arbitration clause is the cheapest paragraph in the contract to write and the most expensive one to get wrong — it decides, years before any dispute exists, who will judge you, under what rules, in what city, with what discovery, and with essentially no appeal. This checklist walks the drafting decisions in order: whether you want arbitration at all, whether the Federal Arbitration Act covers your contract and whether the § 1 transportation-worker exclusion knocks it out, how broad to make the scope, which institution and rules to name, where to seat the case, how many arbitrators and how they are picked, whether to delegate arbitrability to the arbitrator, how much discovery to allow, what interim relief and IP carve-outs to preserve, and how far class waivers and fee-shifting can go before unconscionability doctrine bites. It follows a fictional SaaS vendor drafting two clauses at once — one for its enterprise master services agreement and one for its consumer terms — because the same words that work in a negotiated B2B deal can be fatal in a click-through. Each phase ends with the traps that produce the two worst outcomes in arbitration practice: a clause a court refuses to enforce, and a clause a court enforces exactly as written when you wish it would not. Federal law supplies the spine, but enforceability is decided under state contract law, which varies materially — the checklist flags where you must confirm your own jurisdiction's rule rather than assume a national one.

Drafting an Arbitration Clause: A Practical Checklist

Arbitration > Alternative Dispute Resolution | Published 25 January 2024 - Updated 6 August 2025 | UpLaw - uplaw.us

An arbitration clause is a private constitution for a dispute that does not exist yet. You are choosing the judge, the rules of evidence, the discovery budget, the courthouse, and the right to appeal — all of it, in advance, in a paragraph nobody reads until it is too late to change.

Keywords: arbitration clause, Federal Arbitration Act, § 1 exclusion, delegation clause, arbitrability, AAA, JAMS, ICC, seat, class waiver, unconscionability, EFAA, reasoned award, vacatur

How to use this checklist

Work the phases in order. Each has real check items, followed by Why it matters, and the traps. Running through all of it is a fictional company — Meridian Stack, Inc., a SaaS vendor that sells an enterprise workflow platform under a negotiated master services agreement (MSA) and also offers a freemium consumer note-taking app, MeridianNotes, under click-through terms. Meridian's general counsel must draft two arbitration clauses. They will not be the same clause, and understanding why is most of the skill.

One structural point before you start. The Federal Arbitration Act, 9 U.S.C. §§ 1–16, supplies the federal spine: it makes written arbitration agreements in contracts "involving commerce" valid and enforceable (§ 2), requires a stay of litigation (§ 3), and authorizes an order compelling arbitration (§ 4). But § 2 enforces those agreements "save upon such grounds as exist at law or in equity for the revocation of any contract" — and those grounds are supplied by state contract law. Formation, consideration, unconscionability, and the mechanics of assent to online terms are state-law questions, and they differ meaningfully from California to Texas to New York. Wherever this checklist says "courts," read "courts applying your state's contract law." There is no single national rule of arbitration-clause enforceability, and drafting as though there were is the most expensive assumption in this area.

If you have not yet decided that arbitration is the right forum, start with Choosing a Dispute-Resolution Forum: Litigation, Arbitration, and Mediation Compared and the umbrella Arbitration and ADR: A Toolkit for Choosing a Forum, Drafting Clauses, and Running a Case. For the doctrinal foundation, Arbitration in Practice: A Comprehensive Guide to Alternative Dispute Resolution is the long-form companion to everything below.

Phase 1 — Decide whether you actually want arbitration (and for which disputes)

  • [ ] Identify the realistic dispute population under this contract: payment defaults, service-level failures, data incidents, IP misappropriation, employment claims, consumer claims.
  • [ ] Ask, for each: would we rather be in front of an arbitrator or a judge and jury?
  • [ ] Confirm you value confidentiality, finality, and enforceability abroad more than you value appeal rights, dispositive motions, and precedent.
  • [ ] Price it honestly: arbitrator compensation, institutional filing fees, and hearing costs are real money that litigation shifts to the taxpayer.
  • [ ] Decide whether to make arbitration mandatory or optional (a unilateral option is a red flag in consumer and employment settings — see Phase 10).
  • [ ] Consider a stepped clause: negotiation → mediation → arbitration, with defined time limits.
  • [ ] Ask who your realistic counterparty is. A clause negotiated across the table from another company's GC is judged by a different standard than one presented to a consumer on a signup screen.

Why it matters, and the traps. Arbitration is not "litigation, but faster." It is a different product. You trade the appellate safety net for speed and privacy, and the trade is close to irreversible: under Hall Street Associates, L.L.C. v. Mattel, Inc., 552 U.S. 576 (2008), the grounds for vacatur in 9 U.S.C. § 10 are exclusive, and parties may not contract for expanded judicial review of the merits. An arbitrator who misreads your contract has, in practice, misread it forever — see Oxford Health Plans LLC v. Sutter, 569 U.S. 564 (2013), where the Court upheld an arbitrator's clause construction precisely because the sole question was whether the arbitrator (even arguably) interpreted the parties' contract, not whether the interpretation was right. Our companion guide Damages in Arbitration: What Awards Look Like and Why They Are Hard to Undo is the fuller treatment of that asymmetry.

The trap is drafting arbitration into a contract whose most likely dispute is one you want out of arbitration. Meridian's biggest exposure under the MSA is a customer's non-payment — a claim it would happily take to summary judgment. Its second biggest is theft of its source code by a departing integration partner, where it needs a temporary restraining order in 48 hours. Neither is a natural arbitration claim. That does not mean "no arbitration"; it means "arbitration with carve-outs" (Phase 9). And if the honest answer to the first check item is "we would rather be in court for most of these," then the correct clause is a forum-selection clause and a jury waiver, not an arbitration clause. Deciding not to arbitrate is a legitimate output of this checklist.

Phase 2 — Confirm FAA coverage and the § 1 exclusion for transportation workers

  • [ ] Confirm the contract "evidenc[es] a transaction involving commerce" so § 2 of the Federal Arbitration Act applies, 9 U.S.C. § 2.
  • [ ] Run the § 1 exclusion: does any counterparty fall within "contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce"?
  • [ ] For worker agreements, ask what the worker does, not what industry the company is in.
  • [ ] Do not assume an independent-contractor label solves the problem — it does not.
  • [ ] If § 1 might apply, identify the fallback: a state arbitration act (e.g., the California Arbitration Act, New York CPLR Article 75, or a Revised Uniform Arbitration Act state) and say so expressly.
  • [ ] Confirm no other federal statute strips arbitrability for the claim type (see Phase 10 on the EFAA).

Why it matters, and the traps. The FAA is the engine. Without it, you lose § 3's mandatory stay, § 4's motion to compel, and § 16's asymmetric interlocutory appeal rights — the structure that lets a defendant appeal an order denying arbitration immediately while a plaintiff generally cannot appeal an order granting it. Section 1's exclusion is narrow — Circuit City Stores, Inc. v. Adams, 532 U.S. 105 (2001), confined it to transportation workers rather than all employees — but it is a live wire. New Prime Inc. v. Oliveira, 586 U.S. 105 (2019), held that "contracts of employment" reaches independent-contractor agreements, and that a court must resolve the § 1 question before compelling arbitration even where the contract contains a delegation clause. Southwest Airlines Co. v. Saxon, 596 U.S. 450 (2022), covered a ramp supervisor who frequently loaded cargo onto planes. Bissonnette v. LePage Bakeries Park St., LLC, 601 U.S. 246 (2024), confirmed that the worker need not work in the transportation industry at all — the question is whether the class of workers plays a direct and necessary role in the interstate movement of goods.

The trap: a company with a delivery fleet, a courier network, or last-mile contractors writes one arbitration clause for "all personnel," relies on the FAA, and discovers years later that its drivers were never covered by it. Meridian has no drivers — but if it later acquires a hardware-logistics business, its warehouse loaders may well be § 1 workers, and the contractor paperwork it inherits will not save it. Because the § 1 analysis turns on what the worker actually does, it runs on the same facts as the misclassification analysis; see Worker Classification: A Comprehensive Guide to Employee and Independent Contractor Status.

The fix is a savings sentence: "If this agreement is found not to be governed by the Federal Arbitration Act, it shall be governed by the [State] Arbitration Act, and the parties' obligation to arbitrate shall remain in full force." State arbitration acts are not identical to the FAA — some are friendlier, some less so, and a few impose notice or font requirements the FAA does not — so name a specific state act you have actually read. For the broader employment overlay, see The Employment Law Toolkit: From Hiring to Separation.

Phase 3 — Scope: "arising out of or relating to" and the breadth you are choosing

  • [ ] Choose deliberately between broad ("any dispute arising out of or relating to this Agreement, including its formation, breach, termination, enforceability, or validity") and narrow ("any dispute arising under this Agreement").
  • [ ] Decide whether to cover non-contract claims — tort, statutory, fraud, IP — that touch the relationship.
  • [ ] Decide whether to cover non-signatories: affiliates, subcontractors, successors, end users.
  • [ ] Cross-check every other dispute clause in the deal (SOWs, order forms, DPAs, NDAs, side letters) so the forum provisions do not contradict each other.
  • [ ] State expressly that the arbitration agreement is severable from the container contract.
  • [ ] Decide whether the clause survives termination and expiration of the agreement, and say so.

Why it matters, and the traps. "Relating to" is meaningfully broader than "arising under," and courts read it that way. Under Moses H. Cone Memorial Hospital v. Mercury Construction Corp., 460 U.S. 1 (1983), doubts about the scope of an arbitrable issue are resolved in favor of arbitration — which cuts both ways depending on which side of the "v." you are on. Note the boundary: that pro-arbitration canon addresses scope, not whether an agreement was formed in the first place; formation is an ordinary state-contract-law question with no thumb on the scale.

Severability is doctrine, not decoration: Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395 (1967), and Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440 (2006), hold that an attack on the contract as a whole goes to the arbitrator; only an attack aimed at the arbitration clause itself goes to a court. This is why a plaintiff who wants a judge must plead a challenge specifically to the arbitration provision — and why a drafter who wants an arbitrator should say plainly that the arbitration agreement is a separate contract.

The classic trap is the clause collision. Meridian's MSA says AAA arbitration in Delaware. Its standard NDA — signed six months earlier by the same customer — has a New York courts exclusive-forum clause. Its data processing addendum incorporates the customer's paper, which says ICC Paris. Now a data-breach dispute implicates all three, and the first year of the case is spent litigating where to litigate. Fix it in the drafting stage: make the MSA's dispute-resolution article expressly govern all ancillary documents ("this Article X governs any dispute under this Agreement and any Order Form, SOW, or addendum hereunder, and supersedes any conflicting dispute-resolution provision therein"). See The Commercial Contracts Toolkit: Drafting, Reviewing, and Enforcing Business Agreements and Building an Enforceable NDA Clause by Clause: A Practical Checklist.

Phase 4 — Choose the forum: AAA, JAMS, ICC, or ad hoc; and incorporate the rules

  • [ ] Name a specific institution and a specific rule set, in edition-agnostic language ("the Commercial Arbitration Rules of the American Arbitration Association then in effect").
  • [ ] Match the rule set to the case type: AAA Commercial vs. AAA Consumer vs. AAA Employment; JAMS Comprehensive vs. JAMS Streamlined; ICC for cross-border.
  • [ ] Check whether the institution's expedited procedures trigger below a dollar threshold, and whether you want that.
  • [ ] Consider ad hoc (e.g., the UNCITRAL Arbitration Rules) only if you also name an appointing authority — otherwise you are relying on 9 U.S.C. § 5 and a motion.
  • [ ] For consumer/employment clauses, confirm your clause satisfies the administering institution's minimum standards (the AAA Consumer Due Process Protocol; the JAMS Consumer Arbitration Minimum Standards) — institutions refuse to administer non-compliant clauses.
  • [ ] Consider the institution's mass arbitration procedures if you have a large consumer base.
  • [ ] Confirm the institution you name still exists and still administers the rule set you named. Legacy clauses naming defunct providers are a real and recurring problem.

Why it matters, and the traps. Naming the institution imports hundreds of pages of procedure you did not write — including, critically, the rule that the tribunal decides its own jurisdiction (Phase 7). It also imports fee schedules. AAA and JAMS will decline to administer a consumer clause that violates their protocols, which leaves you holding an unadministrable clause and either a judge who must appoint an arbitrator under § 5 or a judge who finds the clause unenforceable outright. Naming a provider that no longer exists is worse: courts split on whether the provider was "integral" to the agreement (clause fails) or merely "ancillary" (court appoints a substitute under § 5), and you will not know which court you drew until you are already in it.

Mass arbitration is the modern consumer trap and it is a drafting problem. Meridian's consumer terms contain a class waiver (Phase 10). Plaintiffs' firms respond by filing 8,000 individual demands at once; because a consumer-protective clause makes the company pay the arbitration-unique fees (Phase 11), the per-case filing fees alone can run into the millions before a single merits ruling. That is not an abuse of the system — it is the system working exactly as the company designed it, at scale the company did not anticipate. Meridian's options at drafting time include selecting an institution with mass-arbitration protocols and batching or bellwether procedures, adding a mandatory pre-dispute notice-and-negotiation period with an individualized (non-form) notice requirement, and considering whether a small-claims-court carve-out is a better safety valve than the arbitration clause it is meant to protect.

For how a demand actually gets filed and administered once the clause is live, see Filing an Arbitration Demand and Preparing for the Hearing: A Practical Checklist and AAA Commercial Arbitration From Demand to Award: A Comprehensive Guide.

Phase 5 — Seat, venue, and governing law (substantive vs. procedural)

  • [ ] Specify the legal seat ("the seat of arbitration shall be New York, New York"), not just a hearing location.
  • [ ] Separately allow hearings by videoconference or at a convenient location without changing the seat.
  • [ ] Specify the substantive governing law of the contract.
  • [ ] Specify that the arbitration agreement itself is governed by the FAA (belt and suspenders against a generic state choice-of-law clause importing state anti-arbitration rules).
  • [ ] For cross-border deals, confirm the seat is in a New York Convention state and that the award will be enforceable where the counterparty's assets are (9 U.S.C. §§ 201–208).
  • [ ] For consumer clauses, ensure venue is reasonable for the consumer (institutional protocols commonly require arbitration in or near the consumer's home county).

Why it matters, and the traps. Seat is not geography; it is jurisdiction. The seat determines which courts supervise the arbitration, which courts can compel or appoint, and which courts hear a vacatur motion. Volt Information Sciences, Inc. v. Board of Trustees of Leland Stanford Junior University, 489 U.S. 468 (1989), confirms that parties may select state procedural rules to govern the arbitration — but that is usually a choice made by accident, not by design. Mastrobuono v. Shearson Lehman Hutton, Inc., 514 U.S. 52 (1995), is the cautionary tale: a generic New York choice-of-law clause was held not to import New York's then-existing rule barring arbitrators from awarding punitive damages, but the parties spent years and a trip to the Supreme Court finding that out. You do not want to be the next test case; you want the clause to say what it means.

Meridian's MSA fix: "This Agreement is governed by the laws of the State of Delaware, without regard to conflicts principles. Notwithstanding the foregoing, the Federal Arbitration Act, 9 U.S.C. §§ 1 et seq., governs the interpretation and enforcement of this arbitration agreement." Two sentences; a decade of avoided argument.

A cross-border note. If the counterparty's assets are abroad, the seat and the Convention matter more than anything else in the clause, because a U.S. judgment may be far harder to enforce in the counterparty's home courts than a Convention award. Where the contract is a lease or another property agreement, forum drafting also interacts with local-action rules and statutory eviction procedures — see Commercial Leases: A Comprehensive Guide to Negotiating and Drafting and Reviewing a Commercial Lease: A Practical Checklist.

Phase 6 — Number of arbitrators, selection method, and qualifications

  • [ ] Choose one arbitrator (cheaper, faster) or three (redundancy against a bad draw, roughly triple the cost).
  • [ ] Consider a dollar threshold: one arbitrator below $5 million in dispute, three above.
  • [ ] Specify the selection mechanism: institutional list-and-strike, or party-appointed wings plus a neutral chair.
  • [ ] State qualifications — but keep them achievable ("a lawyer or retired judge with at least ten years' experience in commercial software or technology disputes").
  • [ ] Address disclosure and neutrality, including for party-appointed arbitrators.
  • [ ] Provide a default: if the parties cannot agree, the institution appoints (or, in an ad hoc case, the named appointing authority does).

Why it matters, and the traps. With a single arbitrator you are betting the case on one person, with no appeal on the merits. With three you buy insurance and pay for it — three sets of hourly rates, three calendars, and a scheduling problem that quietly eats the speed advantage you bought arbitration for.

Disclosure deserves a line of its own. "Evident partiality" is one of the few grounds for vacatur under 9 U.S.C. § 10(a)(2), and it is almost always about an undisclosed relationship rather than a demonstrably biased ruling. A clause that requires prompt and continuing disclosure, and that says an arbitrator's failure to disclose a material relationship is grounds for removal, gives you a cheap remedy early instead of an expensive one after the award.

The trap is the over-specified arbitrator. A clause requiring "a former Article III judge with at least fifteen years on the bench who is also a licensed patent attorney and fluent in Mandarin" may describe a set with zero members. When the named method lapses, 9 U.S.C. § 5 lets a court appoint — which means you have handed the very choice you were trying to control to the judge you were trying to avoid. Meridian settles on: one arbitrator for disputes under $5 million, three above; AAA list-and-strike; "each arbitrator shall be an attorney or retired judge with substantial experience in commercial technology disputes."

Phase 7 — The delegation clause: who decides arbitrability

  • [ ] Decide who decides gateway arbitrability — whether a valid arbitration agreement exists and whether it covers this dispute.
  • [ ] If you want the arbitrator to decide, say so in clear and unmistakable terms — a standalone delegation sentence, not just an implied incorporation.
  • [ ] Consider incorporating institutional rules that themselves delegate (AAA Commercial Rule R-7; JAMS Rule 11(b)) — and know that most, though not all, courts treat that incorporation as clear and unmistakable between sophisticated parties, and that courts are notably more skeptical of the argument in consumer cases.
  • [ ] Decide whether to carve out certain gateway questions for a court (e.g., class arbitrability, the enforceability of the class waiver).
  • [ ] Make the delegation provision expressly severable.

Why it matters, and the traps. First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938 (1995), sets the default: courts decide arbitrability unless there is clear and unmistakable evidence the parties agreed otherwise. Rent-A-Center, West, Inc. v. Jackson, 561 U.S. 63 (2010), holds that a delegation provision is itself an arbitration agreement that must be specifically challenged; a general unconscionability attack aimed at the whole clause goes to the arbitrator. Henry Schein, Inc. v. Archer & White Sales, Inc., 586 U.S. 63 (2019), eliminates the "wholly groundless" exception — where arbitrability is validly delegated, the arbitrator decides even an arbitrability argument the court thinks is frivolous. And Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79 (2002), keeps procedural questions (timeliness, notice conditions, conditions precedent) with the arbitrator regardless of what the clause says.

Two traps. First, a delegation clause is a loaded gun pointed at your own foot: it means a party can drag you into a full arbitration proceeding just to be told the dispute was never arbitrable — and you will pay the arbitrator to say so. Second, silence is not neutrality. If you leave arbitrability to the court and your counterparty is the one who wants delay, you have donated a motion to them.

Meridian's answer differs by instrument, which is the whole point of drafting two clauses. In the enterprise MSA — sophisticated counterparties, drafted for finality — it delegates. In the consumer terms it delegates most gateway questions but expressly reserves the enforceability of the class waiver for a court, so that a single arbitrator cannot rule the class waiver invalid and then proceed to preside over a class arbitration. That reservation is the practical companion to the blow-up provision in Phase 10.

Phase 8 — Discovery, hearing procedure, and the reasoned award

  • [ ] Set discovery limits in numbers, not adjectives: e.g., "each side may take no more than five depositions and serve no more than fifteen document requests."
  • [ ] Address ESI proportionality expressly, or you will import a full-scale e-discovery fight.
  • [ ] Decide whether dispositive motions are allowed and on what showing.
  • [ ] Set an outside deadline for the hearing (e.g., "the hearing shall commence within 240 days of the arbitrator's appointment").
  • [ ] Require a reasoned award (or a bare award, if you truly prefer opacity) and a deadline for it.
  • [ ] Decide whether the arbitrator may award punitive damages — and if not, say so, because Mastrobuono teaches that a generic choice-of-law clause will not do it for you.
  • [ ] Ask whether third-party evidence is essential to your likely dispute. If it is, arbitration may be the wrong forum.

Why it matters, and the traps. The single most common complaint about commercial arbitration is that it has become litigation with a worse judge and no appeal — and that happens because nobody wrote down a discovery limit. Discovery in arbitration is whatever the arbitrator permits; an arbitrator handed no ceiling and two aggressive litigators will produce something that looks like federal court, minus Rule 56 and minus an appeal.

The third-party evidence problem is structural and cannot be drafted around. Section 7 of the FAA gives arbitrators subpoena power, but the courts of appeals have divided over whether § 7 authorizes pre-hearing document production from non-parties, with several circuits reading the text to permit only a summons to appear and produce at a hearing. Whatever the rule in your circuit, an arbitrator cannot compel a foreign non-party the way a court sometimes can, and you should know that before you sign — not after you discover that the only witness who can prove your case works for someone else.

Ask for a reasoned award. It disciplines the arbitrator, it is what you need for issue preclusion or for collection, and its absence is nearly impossible to attack afterward. Meridian's MSA requires "a reasoned award in writing, setting forth findings of fact and conclusions of law, within 30 days of the close of the record." What happens to that award next is the subject of Confirming or Vacating an Arbitration Award: A Practical Checklist.

Phase 9 — Interim and emergency relief; preserving access to court for injunctions and IP

  • [ ] Confirm the chosen rules include an emergency arbitrator procedure (AAA Commercial Rule R-38; JAMS Rule 2(c); ICC Rules Article 29).
  • [ ] Add an express clause permitting either party to seek provisional relief in court without waiving arbitration.
  • [ ] Consider a targeted carve-out for claims of IP infringement, trade-secret misappropriation, and breach of confidentiality — or, more surgically, an equitable-relief-only carve-out that keeps damages claims in arbitration.
  • [ ] Confirm the clause does not accidentally waive small-claims court access (institutional consumer protocols commonly require preserving it).
  • [ ] Confirm the interim-relief provision does not undercut your own position on waiver under Morgan v. Sundance.

Why it matters, and the traps. Emergency arbitrators are real and useful, but they cannot bind third parties, they cannot issue an ex parte TRO in the hours after you discover a source-code exfiltration, and their orders are not self-executing — you may still need a court to enforce them. Say so in the clause: "Nothing in this Article shall prevent either party from seeking temporary, preliminary, or injunctive relief from any court of competent jurisdiction, and such application shall not constitute a waiver of the right to arbitrate."

The trap is the asymmetric carve-out. Meridian's first draft carved out "claims by Meridian for infringement of its intellectual property" — arbitration for everything the customer might bring, court for everything Meridian might bring. In an enterprise MSA between sophisticated parties, that lopsidedness is negotiable and often survives. In consumer or employment terms, it is Exhibit A in an unconscionability motion, because it maps neatly onto the observation that the drafter reserved the claims it would bring and consigned to arbitration the claims that would be brought against it. Make the carve-out mutual and subject-matter-based, not party-based: "either party may bring claims for infringement or misappropriation of intellectual property, or for breach of confidentiality obligations, in a court of competent jurisdiction." For the underlying substance, see Trade Secret Litigation Under the DTSA: A Comprehensive Guide.

Phase 10 — Class/collective waivers and consumer/employment unconscionability limits

  • [ ] Include an express class, collective, and representative action waiver, worded to cover both court and arbitral class proceedings.
  • [ ] Add a blow-up / non-severability provision for the class waiver: if the waiver is held unenforceable, the entire arbitration clause fails and the claim proceeds in court (so you never end up in class arbitration).
  • [ ] State expressly that the arbitrator may not consolidate claims or preside over a class or representative proceeding absent the parties' written consent.
  • [ ] For consumer/employment clauses, run the unconscionability gauntlet: mutuality of obligation, a neutral arbitrator, adequate discovery, a written reasoned award, all remedies otherwise available at law, and no consumer/employee payment of costs unique to arbitration.
  • [ ] Confirm the assent mechanics actually formed a contract — a genuinely conspicuous clickwrap, not a buried browsewrap link. Formation is state law, and this is where consumer clauses most often die.
  • [ ] Confirm compliance with the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act, 9 U.S.C. §§ 401–402.
  • [ ] In California, check the public-injunctive-relief and PAGA overlays. In other states, check yours — do not assume California's rules or its permissiveness.

Why it matters, and the traps. AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (2011), held that the FAA preempts a state rule conditioning enforceability on the availability of class procedures; American Express Co. v. Italian Colors Restaurant, 570 U.S. 228 (2013), rejected an "effective vindication" argument premised on the cost of proving a federal statutory claim individually exceeding the potential recovery; and Epic Systems Corp. v. Lewis, 584 U.S. 497 (2018), held that class and collective waivers in employment arbitration agreements are enforceable notwithstanding § 7 of the National Labor Relations Act. Meanwhile Stolt-Nielsen S.A. v. AnimalFeeds International Corp., 559 U.S. 662 (2010), and Lamps Plus, Inc. v. Varela, 587 U.S. 176 (2019), make clear that class arbitration cannot be imposed on a party absent a contractual basis for concluding it agreed to it, and that ambiguity will not supply one. That is the doctrinal case for the blow-up provision: class arbitration — a class action with no appeal — is the worst of all available worlds for a defendant.

The limits are equally real, and they are where the state-law caveat bites hardest. The FAA's § 2 savings clause preserves "such grounds as exist at law or in equity for the revocation of any contract," and unconscionability is the principal one. Unconscionability is state law; its content, its procedural/substantive structure, and the courts' appetite for applying it vary widely. Armendariz v. Foundation Health Psychcare Services, Inc., 24 Cal. 4th 83 (2000), remains the reference architecture for mandatory employment arbitration — a neutral arbitrator, adequate discovery, a written award permitting limited judicial review, all statutory remedies, and no requirement that the employee bear costs they would not bear in court — but it is a California decision. Many states have adopted similar minimum-fairness reasoning; others have not, and a clause tuned only to California's list may still fail elsewhere for a reason California would not recognize. Draft to the strictest jurisdiction whose residents you contract with, and confirm the rule in each state that matters to you.

Green Tree Financial Corp.-Alabama v. Randolph, 531 U.S. 79 (2000), places on the party resisting arbitration the burden of showing that arbitration costs would be prohibitively expensive. And Congress has carved out an entire claim category by statute: under the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act (Pub. L. No. 117-90, codified at 9 U.S.C. §§ 401–402), a person alleging conduct constituting a sexual harassment or sexual assault dispute may, at their election, render a pre-dispute arbitration agreement and a pre-dispute joint-action waiver unenforceable as to that dispute. This is not optional drafting; it is federal law, it applies at the plaintiff's election, and a clause that purports to compel those claims to arbitration is simply void as to them. Meridian's employment agreements need an EFAA-aware clause; so, given MeridianNotes' user-generated-content and messaging features, may its consumer terms.

Note also the directional rule of Morgan v. Sundance, Inc., 596 U.S. 411 (2022): a court may not invent an arbitration-favoring procedural rule (there, a prejudice requirement for finding waiver of the right to arbitrate). The federal policy favoring arbitration means arbitration agreements are to be treated like other contracts — no better, no worse. In practice, that cuts against defendants who litigate for a year and then remember the arbitration clause when discovery gets uncomfortable. Related reading: Drafting an Employee Handbook That Holds Up: A Practical Checklist, Employment Discrimination Law: A Comprehensive Guide, and, for the click-through formation problem, Website and Internet Law: A Comprehensive Guide.

Phase 11 — Fees, costs, and fee-shifting

  • [ ] Decide who pays the filing fee, arbitrator compensation, and administrative fees — and be specific.
  • [ ] In consumer and employment clauses, have the company pay all costs unique to arbitration (the safest path through Armendariz-style scrutiny and the institutional protocols).
  • [ ] Decide on prevailing-party attorney's fees — or choose explicit silence, leaving the American Rule and any statutory fee provision intact.
  • [ ] Confirm the clause does not strip a statutory fee-shifting right (a fast route to unenforceability as to that claim).
  • [ ] Consider a loser-pays provision only where both parties are sophisticated and roughly matched in resources.
  • [ ] Calendar the fee-payment rules of your seat — California, for example, treats a drafting party's failure to pay arbitration fees within 30 days after the due date as a material breach and waiver of the right to compel (Cal. Code Civ. Proc. §§ 1281.97–1281.98).

Why it matters, and the traps. Fee allocation is where an otherwise elegant clause dies. A clause requiring a $15/month consumer to advance half of a $60,000 arbitrator's fee is not an arbitration agreement; it is a claim-suppression device with an arbitration clause painted on it, and courts say so. Conversely, the company-pays model has a cost of its own: it is precisely what makes mass arbitration economically devastating (Phase 4). There is no free lunch here — only an informed choice, made with the numbers in front of you.

The California fee-payment statutes deserve their own line in your diary system, and they are a good example of state variation with teeth. A defendant that wins a motion to compel and then lets the AAA invoice sit for 31 days can find itself back in the very court it fought to leave, with the right to arbitrate deemed waived by statute. Most states have no such rule; the point is not that California's rule is universal but that you must know the rule of your seat before you assume an invoice is just an invoice. On what a money award ultimately looks like, see Contract Damages: How Courts Make the Injured Party Whole.

Phase 12 — Confidentiality and the finality/review trade-off

  • [ ] Add an express confidentiality obligation covering the existence of the arbitration, the submissions, the testimony, and the award — institutional rules usually bind the arbitrator and the institution, not the parties.
  • [ ] Carve out disclosures required by law, regulation, auditors, insurers, and court proceedings to confirm or vacate.
  • [ ] Acknowledge the obvious: confirming an award in court will put it on the public docket unless you move to seal.
  • [ ] State that judgment upon the award may be entered in any court having jurisdiction (this is what makes § 9 confirmation clean).
  • [ ] Do not attempt to contract for expanded judicial review of the merits.
  • [ ] Consider an institutional optional appellate procedure (AAA and JAMS each offer one) if the parties genuinely want a merits check.

Why it matters, and the traps. Two traps live here. First, arbitration is private, not automatically confidential — if you did not draft a confidentiality obligation binding the parties, your opponent may hold a press conference on the courthouse steps and there is nothing in the AAA rules that stops them. Second, Hall Street forecloses the private expansion of § 10 review; the only legitimate way to buy yourself a merits appeal is to opt into an institutional appellate arbitration procedure, which is a second arbitration, not a court proceeding.

Know the shape of the endgame you are drafting toward. Vacatur under 9 U.S.C. § 10 is limited to corruption, fraud, evident partiality, misconduct in refusing to hear material evidence, and arbitrators exceeding their powers; a motion to vacate must be served within three months of the award, 9 U.S.C. § 12. Confirmation under § 9 is available for one year and is close to ministerial. That asymmetry — near-automatic confirmation, near-impossible vacatur — is the whole bargain you struck back in Phase 1. Walk it in Confirming or Vacating an Arbitration Award: A Practical Checklist.

Worked example: Meridian's two clauses, side by side

Meridian's general counsel finishes the twelve phases and produces two clauses from one analysis. Comparing them is the fastest way to see what the checklist is actually for.

The enterprise MSA clause (negotiated, sophisticated counterparty). Scope is broad ("arising out of or relating to"), and expressly governs every Order Form, SOW, and addendum, superseding conflicting forum provisions in those documents. AAA Commercial Rules; seat in Wilmington, Delaware; Delaware substantive law with an express sentence that the FAA governs the arbitration agreement itself. One arbitrator below $5 million, three above, by AAA list-and-strike, each an attorney or retired judge with substantial commercial technology experience. Arbitrability is delegated to the arbitrator in a standalone, severable sentence. Discovery is capped at five depositions and fifteen document requests per side, with an express ESI proportionality standard; dispositive motions are permitted on a threshold showing; the hearing must commence within 240 days of appointment; a reasoned award with findings and conclusions is due 30 days after the record closes. A mutual, subject-matter-based carve-out preserves court access for IP and confidentiality claims and for provisional relief. Fees follow the AAA schedule, split, with the arbitrator empowered to shift them to the prevailing party. Confidentiality binds the parties, with carve-outs for law, regulators, auditors, insurers, and confirmation proceedings.

The MeridianNotes consumer clause (click-through, adhesive). The same skeleton; almost every discretionary dial turned the other way. AAA Consumer Rules, and the clause is drafted to satisfy the Consumer Due Process Protocol before it is ever published. Venue: the consumer's home county, or by videoconference at the consumer's election. Meridian pays all costs unique to arbitration. Small-claims court is expressly preserved for either party. The class, collective, and representative waiver is present, backed by a blow-up provision — if the waiver falls, the whole arbitration agreement falls and the case goes to court, so class arbitration is never on the table — and the enforceability of the waiver is expressly reserved for a court, not the arbitrator. An EFAA carve-out states that a person alleging a sexual assault or sexual harassment dispute may elect to bring it in court notwithstanding the clause. The IP carve-out is mutual and subject-matter-based, not "claims by Meridian." A 60-day individualized pre-dispute notice period runs first, and Meridian has read its chosen institution's mass-arbitration and batching rules with an actuary in the room. Assent is a genuine clickwrap: a conspicuous checkbox, adjacent to the terms link, with the arbitration clause called out in bold in a plain-English summary at the top.

The two clauses share a spine and disagree on nearly every dial. That is not inconsistency. That is what it looks like when the same lawyer takes both enforceability and self-interest seriously in two very different bargaining contexts. The failure mode this document exists to prevent is the third clause — the one where Meridian pastes the MSA article into the consumer terms because it is already drafted, and a court refuses to enforce any of it three years later.

Common mistakes to avoid

  1. The "we'll figure it out later" clause. "Disputes shall be settled by arbitration." That is a pathological clause: no institution, no rules, no seat, no arbitrator count. It is probably enforceable, and you will spend six months and a § 5 motion making it work.
  2. The over-specified arbitrator who does not exist, handing the appointment to a court.
  3. Clause collision across the MSA, SOW, NDA, and DPA — three forums, one dispute.
  4. Party-asymmetric carve-outs in consumer or employment clauses. Mutuality is cheap; unconscionability is not.
  5. No blow-up provision behind the class waiver, leaving class arbitration on the table.
  6. Forgetting the § 1 exclusion for a workforce that moves goods — and assuming a contractor label fixes it.
  7. Silence on discovery, which imports litigation-scale e-discovery into a forum with no appeal.
  8. Assuming institutional rules make the proceeding confidential as to the parties. They usually do not.
  9. Believing you can contract for merits review. Hall Street says no.
  10. Ignoring the EFAA, and drafting a harassment-claim waiver that Congress has already made unenforceable at the claimant's election.
  11. Assuming one nationwide rule of enforceability. Formation and unconscionability are state law and they differ; a clause that survives in Texas may not survive in California.
  12. Failing to update legacy contracts — the arbitration clause in your 2015 template is now a compliance defect, and the provider it names may not exist.
  13. Copying your enterprise clause into your consumer terms. They are different instruments serving different risks.

The consolidated drafting checklist

  • [ ] Arbitration is the right forum for the realistic dispute population — and I can say why.
  • [ ] FAA coverage confirmed; § 1 transportation-worker exclusion analyzed; a specific state-act fallback drafted.
  • [ ] Scope chosen deliberately (broad vs. narrow); non-signatories and ancillary documents addressed; severability and survival stated.
  • [ ] A single institution and rule set named, matched to the case type, and compliant with that institution's consumer/employment protocols.
  • [ ] Mass-arbitration exposure assessed; pre-dispute notice period and batching considered.
  • [ ] Seat specified; hearing flexibility preserved; substantive law and FAA-governs-the-clause both stated.
  • [ ] Arbitrator count, selection method, achievable qualifications, disclosure duties, and an institutional default.
  • [ ] Delegation decided one way or the other — in clear and unmistakable words — in a severable sentence.
  • [ ] Discovery limits in numbers; ESI addressed; dispositive motions addressed; hearing deadline set; reasoned award required.
  • [ ] Court access preserved for provisional relief; a mutual, subject-matter-based IP/confidentiality carve-out.
  • [ ] Class/collective/representative waiver with a blow-up provision; no consolidation absent consent.
  • [ ] Consumer/employment fairness: mutuality, neutral arbitrator, adequate discovery, full remedies, company pays arbitration-unique costs.
  • [ ] EFAA carve-out for sexual assault and sexual harassment disputes.
  • [ ] Fee allocation stated; statutory fee rights preserved; seat-specific fee-payment deadlines calendared.
  • [ ] Assent mechanics verified for any online or adhesive contract.
  • [ ] Confidentiality drafted expressly, with required-disclosure carve-outs.
  • [ ] Judgment-on-the-award sentence included; no attempt to expand judicial review.
  • [ ] The governing state's unconscionability and formation rules confirmed for every jurisdiction whose residents sign this.
  • [ ] The clause has been read out loud, start to finish, by someone who did not draft it.

Primary Authority

Statutes

  • Federal Arbitration Act, 9 U.S.C. §§ 1–16 — § 1 (exclusion for seamen, railroad employees, and other classes of workers engaged in foreign or interstate commerce); § 2 (validity, irrevocability, and the savings clause); § 3 (stay of litigation); § 4 (order compelling arbitration); § 5 (appointment of arbitrators); § 7 (arbitral summonses); § 9 (confirmation); § 10 (vacatur); § 11 (modification); § 12 (three-month deadline to serve notice of a motion to vacate); § 16 (appeals).
  • Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention), implemented at 9 U.S.C. §§ 201–208.
  • Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021, Pub. L. No. 117-90, codified at 9 U.S.C. §§ 401–402.
  • Cal. Code Civ. Proc. §§ 1281.97–1281.98 (drafting party's failure to timely pay arbitration fees; California-specific).
  • Uniform Arbitration Act / Revised Uniform Arbitration Act (2000), as adopted with variations by many states — the fallback framework where the FAA does not reach. Confirm your state's version and its departures from the uniform text.

Cases

Institutional rules (non-statutory, but binding once incorporated)

  • AAA Commercial Arbitration Rules and Mediation Procedures; AAA Consumer Arbitration Rules and the Consumer Due Process Protocol; AAA Employment Arbitration Rules and the Employment Due Process Protocol; AAA Optional Appellate Arbitration Rules.
  • JAMS Comprehensive Arbitration Rules and Procedures; JAMS Consumer Arbitration Minimum Standards; JAMS Optional Arbitration Appeal Procedure.
  • ICC Rules of Arbitration, including the Emergency Arbitrator provisions; UNCITRAL Arbitration Rules for ad hoc proceedings.
  • Verify the current edition of any rule set before you rely on a specific rule number; institutions renumber.

Secondary Sources

  • Restatement (Second) of Contracts § 208 (unconscionable contract or term); U.C.C. § 2-302 (unconscionability).
  • Restatement of the U.S. Law of International Commercial and Investor-State Arbitration.
  • Born, International Commercial Arbitration (the standard treatise on international practice).
  • Corbin on Contracts and Williston on Contracts (formation, unconscionability, severability).

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This checklist is general legal information from UpLaw (uplaw.us), not legal advice, and does not create an attorney-client relationship. Laws vary by state and change over time; verify current requirements and consult qualified counsel before acting.