Should You Sign an Arbitration Agreement?
Navigating Arbitration Provisions in Business ContractsIn the realm of business contracts, arbitration provisions are a common sight, and they often appear in downloadable contract templates available online. Frequently, individuals don't give these provisions much thought before signing on the dotted line. However, when a dispute inevitably arises, how you've agreed to address it becomes crucial.
Demystifying ArbitrationArbitration falls under the umbrella of alternative dispute resolution methods, offering a means of resolving conflicts outside the traditional courtroom setting. It's important to note that arbitration isn't synonymous with mediation. In binding arbitration, the process resembles a court trial, but it unfolds before a private judge known as an arbitrator.
Enforceability of Arbitration ProvisionsThe federal Arbitration Act, which encourages and permits arbitration, plays a pivotal role in determining the enforceability of arbitration clauses. Courts have consistently favored arbitration and typically uphold these provisions as they are written.
While some exceptions exist, particularly in employment contexts where discrimination claims can still be pursued through the appropriate agency, in the business arena, arbitration clauses in contracts are generally held valid. It's crucial to understand that an arbitration decision can be entered in any court of competent jurisdiction and enforced like any other legal judgment. Why Include an Arbitration Clause?The motivation behind including an arbitration clause varies depending on the nature of the contract. In employment agreements, employers often favor these provisions due to the upfront costs of arbitration, which can deter employee lawsuits. Additionally, arbitration can be more cost-effective for defendants than court litigation.
In contracts for products or services, providers often seek arbitration clauses, especially when dealing with customers or clients across multiple jurisdictions. Without such a clause, they could potentially face lawsuits in various jurisdictions, making litigation costs unpredictable. An arbitration provision helps establish consistency. However, it's worth noting that some contracts may include arbitration clauses simply because they were part of a template. Is Agreeing to Arbitration Your Only Option?In certain situations, particularly when dealing with employment contracts or contracts presented by large vendors, you may have little choice but to agree to arbitration.
When you do have a choice, consider several factors. Arbitration decisions, like court rulings, are final and binding, offering limited opportunities for appeal compared to traditional court cases. Pay close attention to the arbitration's location, as it can significantly impact your convenience and accessibility during the dispute resolution process. The agreement may specify a particular organization and its rules or opt for a more flexible approach, such as arbitration under the rules of the American Arbitration Association (AAA). The location and rules can greatly affect your arbitration experience. Finally, weigh the importance of the contractual provisions against the potential inconvenience of the arbitration forum, particularly concerning the value and complexity of the contract. Is Arbitration a Cost-Saving Alternative?Arbitration is generally considered less expensive than traditional court litigation. The expedited nature of arbitration often reduces hourly attorney fees.
However, this doesn't mean arbitration is entirely cost-free. Parties must cover the arbitrator's fees, unlike in court cases where the judge's salary is funded by the state, and only the plaintiff pays an initial filing fee. Additionally, legal expenses associated with arbitration, including attorney fees, are still a consideration. |
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Arbitration vs. Mediation: Understanding the Difference
Both arbitration and mediation fall under the banner of alternative dispute resolution, yet they serve distinct purposes. In mediation, a neutral third party strives to facilitate a voluntary settlement between the parties involved. If no agreement is reached, the dispute may proceed to litigation.
Arbitration, on the other hand, features the arbitrator as the third-party neutral, serving as both judge and decision-maker. The arbitrator's ruling is binding, regardless of whether the parties agree with it.
Arbitration, on the other hand, features the arbitrator as the third-party neutral, serving as both judge and decision-maker. The arbitrator's ruling is binding, regardless of whether the parties agree with it.
Beware of Boilerplate Arbitration Provisions
Many business contracts available for download on the internet contain boilerplate alternative dispute resolution procedures. These clauses are often incomplete, inconsistent, or ambiguous, lacking the tailoring needed for your unique business requirements and contract specifics.
Best practices involve having a business attorney draft a customized agreement to align with your needs. If this isn't feasible, at a minimum, consult an attorney to review the provisions and discuss their advantages and drawbacks, ensuring a well-informed decision.
Best practices involve having a business attorney draft a customized agreement to align with your needs. If this isn't feasible, at a minimum, consult an attorney to review the provisions and discuss their advantages and drawbacks, ensuring a well-informed decision.
Meet Our Business Attorneys
Emily Smith-Lee is the owner and founder of slnlaw. She is a 1996 graduate of Boston College Law School. She was previously a partner at the Boston office of a large international firm, where she worked for thirteen years with a focus on business litigation. In 2009, she started the firm that since became slnlaw, and has grown it from a solo practice to a five-attorney firm with multiple practice areas. She has been recognized as Massachusetts Superlawyer each year since 2013, and in 2018 earned recognition as one of Massachusetts Lawyers Weekly's Lawyers of the Year. She has written a book on employment law: Rules of the Road, What You Need to Know About Employment Laws in Massachusetts, and helped hundreds of small business owners with contracts, business transactions, employment law advice, business incorporation, and risk management. She has also litigated business disputes in state and federal courts.
Rebecca Rogers: Rebecca is a 2006 graduate of Boston College Law School, and has worked with slnlaw since 2013. She previously worked as an intellectual property litigation attorney for Fish & Richardson in Boston, Massachusetts, and clerked for the Massachusetts Supreme Judicial Court. Rebecca has helped clients with business contracts, employment contracts, and employment law advice.
Jenna Ordway: Jenna is a 2013 graduate of Quinnipiac Law School, and also earned an LLM in Taxation from Boston University in 2015. She has been affiliated with slnlaw since 2011, first as a law clerk and then as an attorney. Jenna has been recognized since 2019 as a "Rising Star" by Massachusetts Superlawyers. Jenna has helped many small business owners with simple and complex business incorporation, contract review, advice and analysis regarding business disputes, employment law advice, and advice about business succession considerations as part of estate planning.
Elijah Bresley: Eli is a 2014 graduate of Seton Hall Law school, and has worked with slnlaw since 2020. He previously worked for a boutique employment law firm outside of Boston, and then for the Labor and Employment department of a large Boston firm. He also spent a year clerking for the judges of the Superior Court in Hartford, Connecticut. Eli has helped our small business clients with employment law advice and defense of employment-related lawsuits in MCAD and state and federal courts.
Sharleen Tinnin: Sharleen is a 2010 graduate of Northeastern University School of Law, and has been with slnlaw since 2023. Prior to joining slnlaw, she worked with King, Tilden, McEttrick & Brink, P.C. on complex civil litigation matters. She previously worked for the United States Department of Justice, and received an "Excellence in Justice" award in 2017. Sharleen has helped clients litigate business disputes in state and federal courts, and advised business owners about succession considerations as part of their estate planning.
How We Can Help
We have worked with all sorts of these provisions, from reviewing and assessing a dispute resolution procedure in contracts to representing individuals and businesses in mediation and arbitration proceedings. We can help you understand what you are agreeing to and how to make the most of the arbitration rules or mediation procedures. Give us a call at (781) 784-2322 or use the button below to schedule a free consultation. We look forward to hearing from you!
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