It may be an easy decision to include an arbitration clause in your contracts with employees, customers, vendors and other parties once you’ve considered the pros and cons of arbitration vs. litigation. However, there’s a lot more to it than stating that disputes will be resolved via arbitration.
The devil can really be in the details. That’s why it’s important to consider a number of specifics to determine what will work best for your business if you have to go into arbitration. Let’s look at just a few.
Whose arbitration rules will you choose?
You can specify if the arbitration will proceed using the rules of a particular organization, such as the American Arbitration Association (AAA). You can review the procedural rules of the various organizations before you decide.
Agreeing to the rules of one of these organizations may cost you a bit more, but you’ll get an arbitrator is a member. If you don’t specify that you’ll abide by the rules of one of these organizations, you’ll be governed by state or federal rules.
In addition to the rules you and the other party will be bound by, you can specify other rules in your contracts regarding things like how discovery can be done and the limits on the arbitrator regarding the award of damages and whether they can give a “reasoned opinion.” It’s important to know that these added specifics to the rules that you’re agreeing to abide by can be more easily challenged.
It’s crucial to have legal guidance as you draft your arbitration clauses to help ensure not only that they work for you, but that they are legal and can be enforced if necessary.