In part 1 and part 2 of this three-part blog we talked about how arbitration clauses work and why they’re controversial.
In this part, we’ll talk about some advantages and disadvantages of putting an arbitration clause in your own contracts.
Using Arbitration Clauses in Your Own Contracts
If you’re the one likely to get sued, then you may think arbitration sounds like a good idea. Before deciding, however, you should be aware of both the advantages and disadvantages of including an arbitration clause in your own business contracts.
Advantages
- As noted, arbitration is often (but not always) faster and cheaper than going to court.
- You can schedule an arbitration for when it’s most convenient for you, rather than being at the mercy of the court’s calendar.
- Arbitration often results in a less hostile environment. This may be less stressful for you, and even let you keep your unhappy customer once the arbitration is over.
- If the subject of the dispute is highly technical, arbitration lets you pick an arbitrator who understand the field. With a court case, you’re stuck with whichever judge you get.
- As the New York Times report shows, you’re less likely to be hit by a consumer class action – IF the courts in your state uphold your arbitration clause.
Disadvantages
- Court decisions can be appealed to a higher court – all the way up to the US Supreme Court. Decisions that result from binding arbitration can’t be appealed except in very rare situations – such as if you can prove that the arbitrator was biased or bribed. If the arbitrator is simply “wrong” on the facts or the law, you’re screwed.
- Arbitration can actually be more expensive to initiate than litigation — since you’re paying for the “judge” rather than waiting around for one on the public payroll.Where you can hope to save money is on legal fees, since a) you don’t have to have a lawyer represent you at arbitration (though many people choose to) and b) even if you do have a lawyer, arbitrations usually get resolved sooner than court cases, so you don’t run up lawyer bills for years.
In short, there are no easy answers. The right decision for YOU will depend on things like the nature of your business and your tolerance for risk.
Unsure About Your Contract?
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The information and materials in this blog are provided for general informational purposes only and are not intended to be legal advice.
