Protecting Your Business

Adding arbitration clauses to contracts

On Behalf of | Dec 21, 2022 | Business Litigation |

Arbitration is not something that usually comes to mind when considering business litigation. Certain contracts may be worth considering; today, many agreements include arbitration clauses. The answer to having an arbitration clause in your business contracts or using arbitration as a means of alternative dispute resolution (ADR) depends entirely on your business type and the nature of the breach.

Things to consider when thinking about whether to arbitrate versus litigate:

  1. If you choose to litigate, are you willing to lose everything if the other party wins?
  2. Would litigation put your intellectual property and other confidential information at risk, considering that in most circumstances, court pleadings are accessible to the public?
  3. Does your attorney think you have a good chance of winning if you litigate your case?

These are all critical questions you should ask yourself before deciding whether to litigate or arbitrate.

What is arbitration?

Arbitration is an alternative to litigation to solve conflicts between parties. It is a private and highly effective means of conflict resolution. Arbitration is not subject to court rules, making it less formal, and the parties involved in the conflict choose the arbitrator or panel of arbitrators.

How does arbitration work?

Most arbitration proceedings are binding (otherwise, there would not be much of a point in having this alternative to litigation), and the impartial arbitrator(s) review all documentation and evidence provided by the parties and listen to both sides. In the end, the arbitrator renders an award.

Like anything, there are pros and cons to this type of dispute resolution. Most arbitration is binding, and the parties waive the right to seek relief from the court if they are not pleased with the outcome. However, it is essential to note that if the award rendered by the arbitrator is against public policy, illegal or for some few exceptional reasons, the losing party may challenge the award in court. Courts tend to side with arbitrators, which is why it is crucial to remember that this is very unlikely.