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Not all business disputes must go through litigation. Some can be resolved by mediation, and others through arbitration. In arbitration, a neutral party decides the case and gives an award. However, for a dispute to go to arbitration, both parties must sign an agreement or demonstrate by actions that they accept binding arbitration instead of other legal action. You may have a separate arbitration agreement or include it as a clause in a broader contract.
Arbitration can be mandatory, meaning the original contract forgoes litigation; thus, all disputes must go to arbitration, or it can be voluntary, which means both parties agree to it after a fallout, although they have other viable options. It can also be binding or non-binding.
You may have entered into arbitration agreements several times without realizing it. It may have been an employment or a consumer agreement you signed. For example, most credit card contracts include a clause stating that if a cardholder and a creditor cannot resolve a dispute informally, both parties agree to submit it to binding arbitration. Consumers often have a choice to opt out of the agreement within a specified period.
As this article demonstrates, creating an arbitration agreement is straightforward and offers several advantages over litigation.
A crucial element of every contract is dispute resolution. Granted, you don’t enter into a business relationship hoping for conflicts, but you know they may arise. Therefore, it is critical to lay down rules for resolving possible problems. One tool that many businesses use is arbitration.
An arbitration agreement is a contract documenting both parties’ consent to resolve issues before an arbitrator instead of a judge or a jury. The arbitrator is a neutral person with experience in resolving matters similar to the dispute. Retired judges often work as arbitrators, but anyone can assume that role, provided both parties agree they are qualified to arbitrate the case.
By agreeing to arbitration, you may waive your rights to go to court or appeal the arbitrator’s award. Still, the process has many advantages, which explains why it’s popular with commercial and consumer contracts.
Resolving disputes through arbitration rather than in a court of law presents the following advantages.
Signing an agreement is the best way to ensure arbitration works for both parties. The document sets out rules beforehand and determines whether a decision would be final and binding or if parties can seek alternative remedies.
Most arbitration agreements have a similar outline. However, the specifics are unique, depending on your jurisdiction and the type of business relationship. A typical agreement contains the following information.
Include and address every component, even if the agreement is a clause within another contract.
If you are an employer, consider having employees sign an arbitration agreement. This contract can help limit legal costs and save time from lengthy litigation processes.
Start by researching the governing laws and understanding how the law works can help you avoid shooting yourself in the foot, for instance, by not insisting on a mandatory arbitration that becomes too costly in the long run. Speak with an attorney if you need help understanding the legal framework.
Also, think carefully about which disputes will be arbitrated, how you and the other party will pick an arbitrator, who will cover administrative costs and arbitrator fees, and where the arbitrator will meet both parties.
Once you have all this information, you are ready to draft your document.
Remember to use clear and concise language to avoid confusion and misinterpretations.
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