What is an arbitration clause?

An arbitration clause is a provision in a contract that requires the parties to resolve their disputes through arbitration rather than through traditional court litigation. This means that if a disagreement arises between the involved parties, they must submit the issue to an arbitrator or a panel of arbitrators who will make a binding decision on the matter, thereby bypassing the courtroom process entirely. Such clauses are beneficial as they often lead to quicker resolutions and can be less formal and costly than litigation.

In contrast, the other options do not accurately reflect the nature of an arbitration clause. A clause that allows parties to sue each other does not capture the essence of arbitration, which seeks to avoid litigation. While terms outlining obligations are important, they are generally not specific to the resolution of disputes through arbitration. Similarly, a description of the arbitration process itself does not define the clauses that require arbitration; instead, it offers information about how arbitration functions. Thus, the defining feature of an arbitration clause lies in its mandate for arbitration over litigation.