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When do I need an arbitration clause?

On Behalf of | Apr 21, 2020 | Business Law |

Alternative dispute resolution can save your company time and money by resolving conflicts privately. When you include an arbitration clause in your contracts, it allows you to have more control over the process (though not necessarily the underlying dispute).

There are many scenarios where an arbitration clause is a good fit and will strengthen your contracts. It is important to understand what an arbitration clause can and cannot do.

Here’s what you should know about when you should include an arbitration clause in your company’s contracts.

What are some common situations for an arbitration clause?

No one wants to think about what it will look like if you have to use the arbitration clause at the end of a contract. Both parties to the contract hope that the transaction will go as they planned. However, when part of the transaction goes wrong, an arbitration clause can help parties with situations, including:

Going through litigation can be expensive and give your company unwanted attention. Using arbitration to settle disputes can save both parties time and money while preserving the reputation of both parties.

Are there times when arbitration will not work?

Arbitration is a helpful tool, but it does not work in every situation. It is important to understand when arbitration is an option for the type of disputes you may have.

When a dispute is very complex or it involves more than two parties, arbitration may not be an option. Also, keep in mind that the rules for evidence in arbitration are different than if the case were to go to trial. If your opponent could bring some difficult evidence issues, you may not want to include an arbitration clause.  There may also be times when arbitration is not permitted by law.