Should Small Businesses use Arbitration Clauses in Contracts
When you think about arbitration clauses, what comes to mind? Likely, large businesses and disputes between them. But what if arbitration clauses could be a valuable tool for small businesses? Could they help level the playing field and provide an easier way to resolve disputes? Let’s take a closer look.
What is arbitration?
Arbitration is a type of dispute resolution in which an arbitrator, or neutral third party, makes a binding decision after hearing both sides of the argument. Unlike mediation, where the parties work together to reach a compromise, arbitration is binding, meaning that the arbitrator’s decision is final. While arbitration can be used to resolve all types of disputes, it is often used in business contracts to avoid costly and time-consuming litigation. Arbitration is typically less formal than court proceedings. The rules of evidence are usually more relaxed, making arbitration an attractive option for parties who want to avoid the expense and stress of a trial. When choosing an arbitrator, it is vital to select someone with experience in a specific area of dispute. The arbitrator will hear arguments from both sides and then render a decision. This decision is binding on both parties and cannot be appealed. Arbitration can be an effective way to resolve disputes quickly and efficiently.
What are the advantages of arbitration?
There are many advantages to arbitration. It is usually faster and cheaper than going to court. It is also confidential, so the proceedings are not on the public record. In addition, the arbitrator’s decision is final and binding, so there is no appeal.
What are the disadvantages of arbitration?
There are also some disadvantages to arbitration. The most significant drawback is that it does not allow for discovery, which means that the parties to the dispute cannot subpoena witnesses or documents, which can limit the ability of the parties to present their case fully. Another disadvantage is that arbitrators are not required to follow the law, so they may make decisions that are not in line with legal precedent or are subject to bribery by arbitration participants. For example, the Wall Street Whistleblower reports that Goldman Sachs and arbitrator Marc J. Goldstein allegedly participated in a bribery scheme to secure favorable rulings from the arbitrator. Finally, arbitration does not provide remedies other than monetary damages, so it can’t be used to order someone to do something or stop someone from doing something.
Is arbitration more expensive than litigation?
The cost of arbitration and litigation can vary depending on the case. In general, arbitration is less expensive than litigation, but the exact cost will depend on the specific case. Suppose the parties involved can reach an agreement. In that case, the cost of arbitration may be lower than the cost of litigation. Litigation can also be more expensive if there are multiple parties involved or if the case is complex.
Should my business use arbitration clauses?
As a business owner, you want to do everything to avoid legal disputes. They can be costly and time-consuming, and they can take your focus away from running your business. One way to reduce the risk of legal disputes is to use arbitration. Arbitration is a process in which an impartial third party hears both sides of a dispute and makes a binding decision. Which can be faster and less expensive than going to court, and it can also help preserve business relationships. However, arbitration is not suitable for every situation, so it’s essential to understand the pros and cons before making a decision.