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Should You Include an Arbitration Clause in Your Business Contracts?

Business disputes are expensive. In addition to hiring attorneys, you might be pulled away from your business to participate in depositions or answer a lawyer’s questions. With a properly drafted contract you can avoid many disputes, but every company at one time or another finds itself in business litigation.

Arbitration is an alternative dispute resolution technique which has gained popularity with business clients. Arbitration is a little like a trial—but it’s held before a private person, usually a former judge or attorney, who decides the case neutrally based on the evidence presented.

Benefits of an Arbitration Clause

Arbitration is private, not public, so you might be able to protect your company’s reputation in the event of a dispute. You can also shield sensitive information, like financial information, in arbitration. In a court case, you would need to carefully seal this information so that your competitors do not pull it up and learn your company secrets.

Arbitration can also be more efficient than litigating in court. The parties can decide ahead of time how much document production to engage in. You can also decide on the rules to be followed. Resolving a dispute efficiently saves you time and money.

Negatives of an Arbitration Clause

There are very few negatives because you can tailor your arbitration clause to suit your needs. For example, you might want to use arbitration to resolve some disputes but not others. Maybe you want to use arbitration to resolve disputes regarding the quality of goods or services but not intellectual property disputes. You can do that.

You want to make sure your clause doesn’t violate current law. That requires a lawyer’s help at drafting it carefully. There’s nothing worse than including a clause which a judge later invalidates.

If there is one negative to arbitration, it is that arbitration is usually final. This means there is no right to appeal unless the arbitrator was unethical. In a court, you can typically bring an appeal to a higher tribunal to correct mistakes made by the judge below. That avenue is typically off the table with arbitration.

What to Include in Your Arbitration Clause?

Our business clients have great latitude in what to include. For example, we typically include the following:

  • Who will serve as arbitrator. Some of the largest arbitration providers include JAMS and the American Arbitration Association (AAA). Or you might have an arbitrator you have worked with before and want to use again.
  • How attorneys’ fees will be paid. For example, maybe the party which loses arbitration pays the winner. Or each side could be responsible for their fees.
  • The rules of evidence and procedure. If you went to court, you would have to use the state’s rules. In arbitration, you can decide which ones to use.
  • Whether to require mediation beforehand. In mediation, you will meet with an impartial third party to discuss the dispute. This process can sometimes help nudge each side to a resolution, which makes arbitration unnecessary.

Many arbitration clauses are specific to certain industries. This is one reason to use a business disputes attorney with a broad base of experience.

Contact Our Jefferson City Business Disputes Attorney

Call & Gentry Law Group, LLC helps business clients in litigation resolve disagreements in a way that doesn’t bankrupt your company. For assistance, contact us to get started.

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