Non Binding Arbitration Clause Template for the United States

A Non Binding Arbitration Clause allows you to include alternative dispute resolution in your contracts while preserving your fundamental right to pursue litigation. Unlike binding arbitration, this clause creates a structured process for resolving disputes through arbitration where the arbitrator's decision serves as guidance rather than a final, enforceable ruling.

When do you need this document?

You need this clause when entering into business relationships where you want to encourage dispute resolution without surrendering legal rights. Commercial partnerships, vendor agreements, employment contracts, and construction projects frequently include these clauses to demonstrate commitment to resolving conflicts efficiently. Many parties prefer non-binding arbitration because it provides professional guidance on dispute merits while allowing them to maintain control over final outcomes. Insurance companies, healthcare organizations, and technology firms commonly use these clauses in their standard contracts to reduce immediate litigation costs while preserving strategic legal options.

Key legal considerations

Your clause must clearly distinguish between non-binding and binding arbitration to avoid unintended legal consequences. The document should specify arbitrator selection procedures, cost allocation methods, and timelines for the arbitration process. You must explicitly state that the arbitrator's decision is advisory only and that parties retain full rights to pursue litigation regardless of the arbitration outcome. Consider including provisions for discovery limitations, confidentiality requirements, and rules governing evidence presentation. The clause should address whether arbitration is mandatory before litigation or optional at either party's request. You should also specify applicable arbitration rules, such as those from the American Arbitration Association, and include procedures for selecting qualified arbitrators with relevant expertise.

Legal requirements in United States

Under United States law, your non-binding arbitration clause must comply with the Federal Arbitration Act while clearly differentiating itself from binding arbitration provisions. The FAA primarily governs binding arbitration, so your clause must explicitly state its non-binding nature to avoid federal preemption issues. State arbitration laws vary significantly, and you must ensure compliance with jurisdiction-specific requirements for alternative dispute resolution procedures. Some states have specific formatting requirements, mandatory language, or procedural standards for non-binding arbitration clauses. Federal agencies may be subject to the Administrative Dispute Resolution Act, which provides additional framework for non-binding arbitration in government contracts. You should consider recent Supreme Court and circuit court decisions regarding arbitration clause interpretation to ensure your language clearly expresses the parties' intent. State court precedents may also influence how your clause will be interpreted, particularly regarding the transition from arbitration to litigation.