Why Do I Need an Arbitration Clause?

Recent news shows the importance of including an arbitration clause in your contracts. Uber was recently confronted with a lawsuit by a user who claimed they sent an unsolicited text to his phone. This could be considered a violation of the Telephone Consumer Protection Act (TCPA), but Uber successfully drove the lawsuit into arbitration.

Impact of an Arbitration Clause

The main factor that allowed Uber to move the dispute into arbitration was the fact that they’d included an arbitration clause in their Terms of Use contract. Their Terms of Use were easy to access, didn’t require any scrolling, and were displayed in an easy-to-read font. As such, there was no reason why the plaintiff shouldn’t have known about their arbitration clause, which required all disputes to be handled through arbitration rather than in court.

Benefits of an Arbitration Clause

Including an arbitration clause in your contract prevents the costs and exposure of litigation. Disputes are to be handled in a comparatively private and less expensive manner. If anyone attempts to file a lawsuit against you, the terms of the contract they signed with you would prevent that suit from being taken to court.

By guiding disputes into arbitration, you benefit your organization in various ways, including those described below.

Lower Costs

One of the primary benefits of arbitration is it typically costs far less than litigation. Litigation frequently takes a long time to resolve, with some cases stretching out for years on end. Arbitration, on the other hand, is usually resolved more quickly, especially when the terms of arbitration are clearly set forth in contract.

Since attorneys and arbitrators usually charge by the day, the shorter process makes it far less expensive to handle your dispute in arbitration rather than in a courtroom setting. Further savings come in avoiding courtroom fees and (in some cases) the costs of expert witnesses.

Greater Flexibility
Including an arbitration clause also affords you more flexibility when determining an outcome to your dispute. Scheduling is far more accommodating since you’re not waiting for a spot in a crowded court calendar, and the strict rules governing discovery and other procedures are largely done away with.

Minimized Exposure
One last benefit is the fact that arbitration is handled in a private setting. This means your dispute isn’t aired publicly, thereby preserving both parties’ reputations. Since your reputation can be very expensive to repair once tarnished, this benefit is one of the most valuable.

Including an Arbitration Clause in a Contract
In order to make the most of arbitration clauses, they need to be well written. Some of the items that need to be covered include the following:

  • Waiving right to a jury trial—there’s no point in an arbitration clause if people can just sue you anyway
  • Method of choosing arbitrators—make sure it keeps things as fair as possible
  • Binding or nonbinding—nonbinding leaves room for appeal, which affords more flexibility, but may stretch out the process
  • Choice of jurisdiction—you need to know which laws will apply to your situation
  • Discovery—hash out how evidence will be obtained and used
  • Fees—who pays?

When drafting arbitration agreements in your contracts, you’ll need someone who is well versed in the process. Hart David Carson LLP provides high quality arbitration and contract drafting services to clients throughout Illinois, so contact us for all your ADR needs.

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