What Is An Arbitration Clause?
An “arbitration clause” is a provision added in a contract where the contributing parties agree that in the event of a dispute, they would resolve them out of court. Conventionally, the addition of the clause within the contract indicates that neither of the parties would bring the other to a traditional court setting. Instead, the two would work out to resolve the dispute in an alternative setting. This forum helps settle disputes faster and with significant cost savings.
When such an event occurs, a third-party enters into the talks, acting as the “arbitrator”, who will review evidence and decide who should win this dispute. Whilst the settlement might include remedies for one or all the parties, the fact that it is done outside the court does less damage.
Binding Arbitration And Non-Binding Arbitration
Arbitration can be segmented into two types. Binding Arbitration is one where the decision taken by the arbitrator is final and it is a must for the parties to accept and abide by it.
Non-Binding Arbitration, on the other hand, is a type of clause which gives the concerning parties the right to reject the decision given by the arbitrator. Meaning that they have the freedom to take matters to the court and seek a final decision.
In most cases, companies prefer adding a binding arbitration clause in the contract. This is solely because the process is decisive and likely to resolve disputes faster.
Advantages Of Adding An Arbitration Clause In The Contract
While some owners prefer moving to the court, others are content with the idea of resolving them outside the court because of the benefits.
Adding an arbitration clause speeds up the process of coming to a mutual decision and resolving disputes.
This is flexible and each party has its say in it when making the final call.
Arbitrators can be selected by the parties which give them leverage to pick one who is technically sound and well aware of the topic on which they are disputing, instead of having a judge with minimal knowledge about the subject matter.
Drafting Arbitration Clauses: Resolving Disputes Out Of Court
Adding an arbitration clause within the contract is the best way to resolve disputes outside the court. However, a poorly drafted clause could bring more harm than good. If the clause fails to cover all possible disputes, you might end up in the courtroom, fighting over the clause arguments. To avoid this, you must take into account a few practical considerations.
An arbitration clause should mention that all disputes between parties, irrespective of the cause, are subject to arbitration. In other words, there must not be an exception in the clause. If, due to any reason, the clause accepts exceptions to the dispute arbitration clause, either of the involved parties can sue the other in court.
Hence, it is important that you take the utmost care when adding the clause or before signing the agreement. Ensure that the clause mentions that all disputes are subject to arbitration. Also, keep a note of whether the said statement isn't contradictory or contradicted by other statements in the document.
All in all, a solid arbitration agreement must have a declaration that all of the parties would, under all circumstances, arbitrate their matters. This leads to the addition of the clause, ensuring that all disputes are resolved outside of court.
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Yoel “Mo” Molina, I am a lifelong resident of Miami, Fl. I am a graduate of Miami Senior High, Class of 1992, Georgia Institute of Technology, B.S. 1997 and University of Maine School of Law, J.D. 2001. I have been practicing law in Miami Since 2001. I am a former training prosecutor in the Miami-Dade State Attorney’s Office. I have experience in jury trials, appeals, and administrative hearings. I have appeared before judges across the State. My experience ranges from civil litigation matters, collection matters, foreclosure, business and corporate, contracts, real estate, leases and employment matters..
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"My name is Anastasia Yecke Gude and I am the owner of Healing Hands Therapeutic Massage LLC. In the process of my company’s growth and expansion, I suddenly found myself a few weeks ago in need of a 1099 contractor agreement, and I needed it ASAP. As in, the very next day! I contacted the Law Office of Yoel Molina and his assistant put me in touch with Mo. I sent him what I had drafted up and he replied within a few hours with suggested revisions and clarifications, as well as a few insights I had not even considered. I was thoroughly impressed by the quality of work he provided, especially considering the time crunch I put him in (sorry, Mo!). I definitely recommend his services to anyone in need of a good contract attorney, and I will be calling him again for future work…hopefully in less of a rush next time!"