Arbitration clause
An arbitration clause is a contract term that sends disputes to a private arbitrator instead of a court, often paired with a ban on class actions.
Also called: arbitration agreement, forced arbitration, mandatory arbitration, binding arbitration clause
An arbitration clause is a contract term that sends disputes to a private arbitrator instead of a court, often paired with a ban on class actions.
What it means
An arbitration clause is a term in a contract that says disputes will be decided by a private arbitrator instead of a judge or jury. You'll find them in app terms of service, bank and phone agreements, and job contracts.
The Federal Arbitration Act says a written arbitration agreement in a contract involving commerce is "valid, irrevocable, and enforceable." The exception is grounds that would let you cancel any contract, such as fraud (9 U.S.C. § 2). In AT&T Mobility v. Concepcion (2011), the Supreme Court held that the Act overrides state rules that single out arbitration, and that courts must treat arbitration agreements like other contracts.
Many arbitration clauses also include a class action waiver, in which you agree to bring claims on your own and not as part of a class. Some let you opt out within a stated window after you sign up. The contract says whether that option exists and how to use it.
What it means for you
If a company you dealt with has an arbitration clause, it may ask a court to send your own lawsuit to arbitration, and courts usually enforce these clauses. A settlement is different. When a company settles a class action, the deal can cover customers whose contracts have a clause, so don't assume you are out. Read the class definition and exclusions on the official settlement website. A clause in your old terms of service usually does not stop you from filing a claim in a settlement that covers you.
Example
Say you signed up for a phone plan and clicked "I agree" to terms with an arbitration clause. Later you are overcharged. If you sue in court, the company asks the judge to send your claim to arbitration, and the judge will usually enforce the clause. Separately, if the company settles a class action over the same overcharge and your plan is covered, you can still file a claim in that settlement.
FAQ
Sometimes. Some contracts give you a short window after you sign up to opt out in writing, and the terms say how. If that window has passed, the clause generally stays in force, so look in the dispute resolution or arbitration section of the terms.
Not automatically. What matters is whether you fit the settlement's class definition and any exclusions. A clause in your old terms of service usually doesn't stop you from filing a claim in a settlement that covers you.
Related terms
- 9 U.S.C. § 2, Federal Arbitration Act (Cornell Legal Information Institute)
- AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (2011) (U.S. Reports, Library of Congress)
Updated Oct 18, 2026. Plain-English definitions for general information — not legal or tax advice.