Should Your Contract Contain a Mandatory Arbitration Clause?

Whether to Use a Mandatory Arbitration Clause

Whether to Use a Mandatory Arbitration Clause
There are pros and cons to including a mandatory arbitration clause.

Whether to Use a Mandatory Arbitration Clause: Should your contract contain a Mandatory Arbitration clause? Arbitration can be a useful tool in resolving legal issues without having to go to court; however, there are a few disadvantages to arbitration as well. This article contains an overview of the advantages and disadvantages of arbitration that you should consider before agreeing to a mandatory arbitration clause in your contract.

Decide Whether to Use a Mandatory Arbitration Clause

Arbitration proceedings do not take place in open court and the transcripts are not public information. This can be valuable if the parties are trying to maintain confidentiality. Unlike court cases where a judge, who may be unfamiliar with the legal issues, is assigned a case, the parties can mutually choose the arbitrator who has experience with the disputed issue at hand. This can be particularly beneficial if the case involves a complex issue.  On top of having knowledge of the disputed issue, arbitrations often have a lighter caseload than judges. This means that the arbitrator may render his or her decision faster than a judge would.

Arbitration has been considered cheaper than court litigation; however, the American Arbitration Association charges an administrative fee based on the amount of the claim that ranges from $800 for claims less than $75,000 to $6,200 for claims between $500,000 and $1 million for commercial arbitration. Even after the arbitration award is announced, the prevailing party still needs to file an application with the court to confirm the arbitration award and enter judgment, which results in the parties incurring more attorneys’ fees.

For the non-prevailing party, it is extremely difficult to appeal an arbitration award, even if there is a blatant mistake. However, effective November 1, 2013, the American Arbitration Associates (“AAA”) Optional Appellate Arbitration Rules allows parties to contract to the appeal of an arbitration award rendered under the AAA or the International Centre for Dispute Resolution to an appeal tribunal.

If you are considering adding an arbitration clause to your contract or need assistance interpreting or drafting one, contact the Boyer Law Firm today.

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