Should You Have Arbitration Clauses in Your Contracts?

Many employers and vendors utilize arbitration clauses as part of their standard practices. We are often asked about whether or not they should be included in contracts.

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When deciding whether to have an arbitration clause in your contract, there are a variety of issues and potential issues to consider.

What is arbitration?

Arbitration is a form of dispute resolution and often used as an alternative to litigation. Many arbitration clauses set out the rules to be followed, such as using the rules of the American Arbitration Association. Arbitration is usually binding.

Arbitration standards are less clear than court rules.

Does arbitration benefit the “bigger” party?

It can. Arbitration can be extremely costly. While arbitration is an impartial dispute resolution forum, it allows big companies to settle disputes without public court records.

Many arbitration clauses are binding, so it can be difficult or impossible to appeal a decision. Smaller clients or individuals should understand this, as there may be more at stake for them.

Do you have to have all or nothing arbitration?

No, there can be varying degrees of arbitration built into a contract. We help our clients decide whether or not arbitration or litigation is better for them and what type of arbitration works for them.

Contracts can have arbitration for certain disputes and can also provide for a certain arbitrator.

Contracts can and should be tailored to the specifics at hand. Certain contracts may have different dispute resolution or escalation procedures built in.

Make sure to work with your attorney to develop a clause that works for you or negotiate a better dispute resolution clause.

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