Should I agree to arbitration and does it matter which state laws are used to govern the arbitration?

It is generally in a company's best interest to have arbitration clauses in their contracts for the simple reason that arbitration usually eliminates the possibility of a runaway jury verdict. Eliminating the runaway verdict naturally has the effect of lowering the leverage you have to force them into a more favorable settlement. This logic assumes that in whatever dispute may arise, the company will probably be the defendant. If, however, for some reason the company wants to sue you, the arbitration clause will work in your favor for the same reason.

Arbitration is essentially no different from courts in that some arbitrators are very good at what they do and have a strong working knowledge of the law, while others are not. Same rule applies to judges. The key difference is that judges are public figures and are, at least in Texas, elected by the public. This makes them accountable for their actions. Arbitrators are hired by arbitration forums, and are much less accountable.

Arbitration is also somewhat dangerous in the fact that it has a limited appeals process. In a normal court case, you have a right to appeal any mistake of law to the court of appeals, and possibly the supreme court. In an arbitration hearing, you have three months from the date of the arbitration award in which to contest the award in court, and your grounds for contesting the award are limited.

Arbitration clauses are usually more in favor of the business, as opposed to the individuals with whom they are contracting, but sometimes they actually favor the individual. Regardless, they have become so prevalent that you may have trouble finding someone to represent you who does not insist on the clauses being included in the contract.

Almost all contracts now have a "choice of law" provision included which states that the laws of a particular state will govern disputes, whether or not your contract includes an arbitration clause. This, like the arbitration clause is not necessarily a bad thing. Some choice of law provisions are drafted because the laws of that state are more favorable to the business, but some are drafted that way simply because the business practices primarily in one state, and has a reasonable desire to operate under the laws of one state instead of learning the laws of each individual state in which it chooses to do business. It really depends on what state they are choosing, and how those state laws differ from Texas in the areas of law relevant to your particular contract. You should look at what states are being proposed and determine if they differ from Texas in significant ways. If the arbitration clause states the FAA (Federal Arbitration Act) applies, then federal law will govern the arbitration proceedings, but the chosen state law will apply to the substance of the arbitration.

In sum, both clauses usually favor the business, but are not always inherently dangerous. Further, you will probably have trouble finding someone willing to exclude them from the contract.

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