Why is an Arbitration Clause Being Proposed?

If you are being asked to sign a contract, always look to see if there is an arbitration clause. If there is enough at stake in the contract, you should question why it makes sense to have such a clause. If the potential benefits outweigh the potential drawbacks, it makes sense to agree to arbitration. Otherwise, you may want to propose that it be removed.

Are Personal Rights Involved?

In a strictly business or consumer situation, arbitration may make a lot of sense. However, it may be a different situation where other rights are involved that could potentially have a devastating effect on you personally in the event of a dispute. Examples would include anything having to do with your job or with professional services that might be rendered to you.

Am I in the Position to Negotiate With Respect to the Arbitration Clause?

In theory, all contracts are negotiable. However, the practical ability to do so depends on the bargaining position of the parties. If you are a consumer, for example, you may not have much choice other than to “take it or leave it” in many contracts that you are being asked to sign. In other situations, such as buying a house or negotiating an employment contract, you may have a large say in the matter.

Would You Benefit From Arbitration?

This is where you have to pull out your crystal ball. Try to anticipate the nature of any disputes that would arise. Would you want to resolve them quickly and easily through arbitration with the associated risks (for example, the potential for limited damages, no right to appeal, the difficulty of assessing the fairness of the process)?

Would I be in a Better Position to Fight a Court Battle Than the Other Side?

This is sort of a ruthless way to look at the situation. In a business deal, though, you may not want to give the other side a right to arbitrate if you would be in a better position to stick it out in a court battle. The flip side, of course, is that you may very well want to agree to arbitration if your best chance at resolving any disputes that arise is going to be through getting to arbitration as quickly and inexpensively as possible.

What Do I Have to Lose by Agreeing to Arbitration?

The answer to this question depends upon the nature of the dispute that might arise and what your remedy might be. If you are giving up an opportunity to go to court on an injury where a large jury verdict might result in your favor, you may not want to agree to arbitration. Even though the cost of going to court would be tremendous, attorneys are more inclined to take cases on a contingency fee basis where jury verdicts can be obtained. Primary examples would include personal injury and employment law matters.

What Does the Arbitration Clause Cover?

Arbitration clauses have evolved to be rather sophisticated and complex. You should read each sentence carefully and try to understand it. Sometimes the concept of arbitration may make sense but the clause itself can be too overbearing. The opposite may likewise be true. If the clause does not make sense to you, you may want to hire a lawyer to go over it with you prior to signing the contract.

What is Excluded from the Arbitration Clause?

Many arbitration clauses will exclude certain things, such as a request for an injunction. In such cases, either party would be entitled to go to court to seek relief from the behavior that they would like stopped. These exclusions may make sense in a lot of situations, but you should still be sure to try to read and understand them before agreeing to arbitration.

What Would I Do in the Event of a Dispute?

This is a good final question to ask yourself during the course of reviewing the clause. If you cannot perceive what you would be required to do now, it is not going to make any more sense down the road when a dispute actually arises. If, for example, a clause provides for arbitration through the American Arbitration Association, you could call the nearest office and find out more of what would be involved.

DISCLAIMER: This site and any information contained herein are intended for informational purposes only and should not be construed as legal advice. Seek competent legal counsel for advice on any legal matter.