Arbitration Clauses and Dispute Resolution: What Every Business Contract Needs

Settling contract disputes can be a messy, and often lengthy, process. With both sides believing in their own interpretation of the agreement, it could take years of exhaustive appeals and legal maneuvering before they reach a resolution. An arbitration clause can provide a predetermined method of resolution for such disagreements. Including such a provision in contractual language can be a delicate process. What type of arbitration clause should your next business contract include? Our lawyers unpack the process to make the decision as easy as it gets.

What is Arbitration?

Arbitration is a means of conflict resolution where a neutral third party – the arbitrator – settles a dispute after hearing arguments and evidence from both parties. This takes place outside a court of law, and does not involve a judge or jury. Because the civil justice system isn’t intimately involved in the setting, arbitration offers a much faster path to conflict resolution – as long as both parties agree with the decision the arbitrator makes.

Binding vs Non-Binding Arbitration

binding arbitration FAQ

Binding arbitration is as final as the name suggests. Including a binding arbitration clause means the decision the arbitrator reaches in any dispute is final – no appeals. If your company wants a speedy resolution to conflict, a binding clause is the way to go. If you’d like the option to appeal a decision you don’t agree with, better to include a non-binding option. There are merits and disadvantages to both, which is why you should always have an experienced business contract lawyer review your agreement before you sign.

Who Pays the Arbitrator?

An enormous advantage in any arbitration clause is getting to pick the arbitrator who hears the dispute. While paying this type of professional can get expensive – upwards of $10,000 for single decision, according to Nolo.com – being the one to hire him means if you’re not happy with the outcome, they won’t get work from you ever again. The U.S. Postal Service has used arbitration for years as a means of dealing with terminating the employment of union members. Guess who choose the venue and pays the arbitrators? If you circled “USPS” on your answer sheet, you got this one right.

Rights of Discovery

Pennsylvania business contract lawyers

An arbitration clause doesn’t automatically grant the same rights to both parties as in civil disputes in court. The right of discovery – seeing what evidence the other side has before the hearing – doesn’t exist unless your business includes specific language requiring it. If you want to come into a hearing prepared, you need to know what kind of hand the other parties to the contract are holding.

Before you agree to any contractual agreement, hire experienced business contract lawyers in Chester County to review the documents in light of your company’s needs. Don’t go blindly into an agreement that could cost your business millions in the coming years. Call our firm today to ensure your rights as a business owner are upheld, and you don’t make a mistake that could rob your company of its profitability, market agility and staying power.