Enforcement of Arbitration Clauses in Illinois Business Contracts
In Illinois, when a business contract includes an arbitration clause requiring that business disputes be resolved through binding arbitration, courts are generally inclined to enforce it. Avoiding arbitration is difficult—often impossible—if the clause is valid and the dispute falls within its scope. This is true even when a party claims the entire contract is void and not enforceable. Illinois courts typically treat such threshold challenges as questions for the arbitrator, not the court.
In LRN Holding Inc. v. Windlake Capital Advisors, LLC, 409 Ill. App. 3d 1025 (3d Dist. 2011), the Illinois appellate court held that a claim asserting a brokerage agreement was void ab initio—due to the broker’s failure to register under the Business Broker Act—still had to be arbitrated. The contract contained a broad arbitration clause covering “any controversy, dispute, or claim” related to the business agreement. Because the arbitration clause itself was valid and encompassed the contract dispute, the court held the matter must be submitted to arbitration before the American Arbitration Association (AAA). Id. at 1026–29.
This principle is consistent with federal arbitration law. In Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440 (2006), the U.S. Supreme Court confirmed that:
Thus, unless the arbitration clause is directly challenged, courts must defer to the arbitrator to determine whether the broader contract is enforceable. LRN Holding, 409 Ill. App. 3d at 1029 (citing Buckeye, 546 U.S. at 445–46).
Illinois courts have long recognized a strong public policy favoring arbitration. The Illinois Supreme Court has noted that arbitration is “a speedy, informal, and relatively inexpensive procedure for resolving controversies arising out of commercial transactions.” Bd. of Managers of Courtyards at Woodlands Condo. Ass’n v. IKO Chicago, Inc., 183 Ill. 2d 66, 71 (1998). Courts resolve doubts about the scope of arbitrable issues in favor of arbitration. Heiden v. Galva Foundry Co., 223 Ill. App. 3d 163, 168 (1991), quoting Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24–25 (1983).
As reaffirmed in LRN, “The decision whether to compel arbitration is not discretionary. Where there is a valid arbitration agreement and the parties’ dispute falls within its scope, arbitration is mandatory and the trial court must compel it.” LRN, 409 Ill. App. 3d at 1027, 1029.
The Illinois appellate courts have consistently held that arbitration should not be denied unless “it may be said with positive assurance that the arbitration clause is not susceptible to an interpretation that covers the asserted dispute.” Croom v. City of DeKalb, 71 Ill. App. 3d 370, 373 (2d Dist. 1979). In Salsitz v. Kreiss, 198 Ill. 2d 1 (2001), the Illinois Supreme Court further clarified: Where the language of the arbitration clause is clear and the dispute falls within its scope, the court should compel arbitration. If the clause is broad and ambiguity exists as to whether the dispute is covered, the arbitrator should decide the issue of substantive arbitrability. Id. at 9.
This principle is also reflected in the rules of the American Arbitration Association (AAA). AAA Rule R-7(a) states: “The arbitrator shall have the power to rule on his or her own jurisdiction, including any objections with respect to the existence, scope, or validity of the arbitration agreement or the arbitrability of any claim or counterclaim.”
Rule R-7(b) further provides: “The arbitrator shall have the power to determine the existence or validity of a contract of which an arbitration clause forms a part. Such a clause shall be treated as an agreement independent of the other terms of the contract.”
Reasons Parties May Still Want to Avoid Arbitration
Despite the strong public policy favoring arbitration in Illinois and its widely recognized benefits—such as privacy, speed, and reduced formality—there are still several practical reasons why parties may prefer to litigate in court. These reasons often arise in real-world disputes and reflect concerns about fairness, efficiency, and strategic outcomes:
Limited Appellate Rights
Arbitration awards are notoriously difficult to challenge. Under the Federal Arbitration Act and Illinois Uniform Arbitration Act, courts may only vacate an award in rare circumstances, such as fraud, corruption, or manifest disregard for the law. This means that even if an arbitrator makes a clear legal error, the losing party typically cannot appeal.
Example: A software company in a licensing dispute loses in arbitration because the arbitrator incorrectly interprets a critical provision of copyright law. In court, such an error might be overturned on appeal. In arbitration, the award is final unless the company can prove the arbitrator acted with clear bias or exceeded their powers—an extremely high bar.
Restricted Discovery
Unlike court proceedings, arbitration typically allows only limited discovery. Formal depositions, interrogatories, and document requests may be curtailed by the arbitrator to keep the process efficient. While this can reduce costs, it may also prevent a party from uncovering key evidence.
Example: In a construction defect case, the property owner may need internal communications and site inspection records from the builder to prove negligence. If the arbitrator limits discovery to only a handful of documents and no depositions, the owner’s case may be severely undermined.
No Jury Trial
Arbitration means waiving the right to a jury. For some litigants—especially plaintiffs—this can be a disadvantage, as juries may be more sympathetic to certain types of claims (e.g., consumer fraud or employment discrimination).
Example: A female executive bringing a gender discrimination claim may prefer a jury trial, believing jurors will be more receptive to her emotional testimony than a single arbitrator who may take a narrower view of the law or damages.
Confidentiality
While arbitration proceedings are generally private, some parties may actually prefer the public scrutiny and accountability of a courtroom. Public litigation can help shape industry standards or deter similar misconduct by the opposing party.
Example: A small supplier accusing a major national retailer of anti-competitive practices may want the case heard in public to generate media attention and support from regulators—goals that cannot be achieved in a private arbitration.
Risk of Arbitrator Bias
Some arbitrators may develop “repeat-player” tendencies, consciously or unconsciously favoring large corporations or law firms who regularly appear before them. Though ethical rules prohibit bias, concerns about neutrality can persist.
Example: In a franchise dispute, the franchisor is frequently involved in AAA proceedings and has previously used the same arbitrator. The franchisee may worry—rightly or wrongly—that the arbitrator could lean in favor of the more familiar party.
Cost Concerns
Although arbitration can be less expensive than litigation in smaller disputes, the cost savings often evaporate in complex cases. Arbitrator fees, administrative costs, and hearing room rentals can add up quickly—especially in AAA or JAMS-administered cases.
Example: Two small businesses dispute a $150,000 marketing contract. The AAA filing fees, case management fees, and arbitrator hourly rates (often $400–$700/hour) could exceed $30,000—potentially more than the cost of litigating in state court.
Limited Precedent
Because arbitration awards are not published and do not carry precedential value, parties lose the ability to shape or rely on established case law. This is especially problematic in matters where consistent outcomes across cases are important, such as in insurance, employment, or intellectual property.
Example: A software developer wants clarity on whether a non-compete clause in her contract is enforceable. A court decision could provide guidance for future employment agreements and industry practices. Arbitration, by contrast, would yield no published decision and no guidance for similarly situated employees.
Enforcement Challenges
Although arbitration awards are generally enforceable in court, converting an award into a judgment may require post-award litigation—particularly if the losing party resists compliance or if international enforcement is involved.
Example: A U.S.-based importer prevails in arbitration against a European manufacturer for defective goods. However, enforcing the award abroad requires navigating foreign courts, treaty obligations under the New York Convention, and sometimes re-litigating procedural issues.
Bottom Line: Arbitration Will Be Enforced If the Clause Is Valid
Unless there are compelling legal grounds to invalidate an arbitration clause, Illinois courts will enforce arbitration agreements. The most common exceptions include:
Contact Our Chicago Business Litigation Attorneys
Our business attorneys regularly assist businesses in navigating arbitration clauses, enforcing or challenging their application, and representing clients in both arbitration and court. If you are facing an contract dispute or breach of contract matter, please do not hesitate to contact our law firm. We make every effort to respond to all inquiries within one business day.