Arbitration Clause in Agreement Format: What It Is and Why You Need It
When entering into a business agreement, it is essential to have an arbitration clause in place. This clause outlines the process for resolving disputes that may arise between the parties involved. By including an arbitration clause in your agreement format, you can avoid costly and time-consuming litigation in court.
What is an Arbitration Clause?
An arbitration clause is a provision in a contract that requires the parties to resolve any disputes or disagreements through arbitration. In arbitration, a neutral third party called an arbitrator listens to both sides of the dispute and makes a binding decision. This process is often faster, less expensive, and more private than going to court.
Why Include an Arbitration Clause in Your Agreement?
There are several reasons why you should include an arbitration clause in your agreement:
1. Saves Time and Money: When disputes arise, going to court can be a lengthy and expensive process. Arbitration is often quicker and less expensive, so including an arbitration clause in your agreement can save you time and money in the long run.
2. Provides Privacy: Court proceedings are public, which means anyone can attend and access the information presented. Arbitration proceedings, on the other hand, are typically private, so including an arbitration clause in your agreement can protect your confidentiality.
3. Allows for Expertise: You can select an arbitrator who has expertise in the subject matter of your dispute, something that may not be possible in court. This can lead to a more informed and fair decision.
4. Reduces Risk: By including an arbitration clause in your agreement, you can reduce the risk of a jury decision that may not be in your favor. Arbitration provides a more predictable outcome since it is decided by a neutral third party.
How to Draft an Effective Arbitration Clause
When drafting an arbitration clause, it is important to be clear and specific. Here are some tips to help you create an effective arbitration clause:
1. Choose the Right Forum: Select an arbitration forum that makes sense for your business. There are many options available, such as the American Arbitration Association or JAMS.
2. Define the Scope: Clearly define the types of disputes that will be subject to arbitration. This should include the types of claims, the amount in dispute, and any exclusions.
3. Specify the Rules: Include the rules that will govern the arbitration process, such as the number of arbitrators, how they will be selected, the timeline for the proceedings, and the location.
4. Identify the Arbitrator: Identify the individual or organization that will select the arbitrator. This could be a specific organization, or you can allow each party to choose one arbitrator.
An arbitration clause is an essential component of any business agreement. By including an arbitration clause in your agreement format, you can save time and money, protect your privacy and confidentiality, and reduce the risk of an unfavorable decision. When drafting your arbitration clause, be clear and specific, and choose the right forum and rules for your business.