Most of you have agreed to an arbitration procedure and did not even know it. Larger companies often include this provision in their online terms and conditions in the long block of text you have to scroll through before clicking that ‘I Agree’ button to get on with making your purchase The arbitration clause typically requires that any claim be submitted to a particular arbitration organization instead of filing a lawsuit. This begs the question: If it is a good idea for them, should you include an arbitration clause in your contracts?
Arbitration and litigation are two legal processes that can be used to resolve disputes between parties. While both processes aim to resolve conflicts, there are significant differences between the two that individuals and businesses should consider when deciding which one to use.
Litigation refers to the process of resolving disputes in court. You likely know that this process involves one party filing a lawsuit against another and ultimately a trial, where a judge or jury will hear the evidence and make a final decision. This is the process everyone hears about for two reasons. First, litigation is much more common since it is the default method for resolving claims. Unless the parties have specifically agreed to arbitration, then litigation in court is the only path for getting a decision on the merit of the claims. Second, the courts are generally legally required to conduct the litigation process in a manner that is open to the public. Pleadings are usually public record and generally anyone who is interested enough to do so can sit in court and watch most hearings or trials.
Arbitration, on the other hand, is a private process designed around the parties’ agreement. The arbitration clause should spell out the agreed terms like; what kinds of claims must be arbitrated, where the arbitration will occur, and who can be the arbitrator (the neutral third party that makes the final decision.) The arbitrator is often an expert in the field of the dispute and is selected by the parties themselves. Unlike litigation, arbitration is less formal, less expensive, and can be resolved more quickly. Additionally, arbitration is usually confidential, and the outcome is binding, meaning the arbitrator’s decision can only be appealed under very limited circumstances.
When deciding between arbitration and litigation, parties should consider several factors. The first is the nature of the disputes which are likely to occur. Some disputes may be better suited for litigation, such as those involving complex legal issues or large amounts of money. Other disputes, such as those involving ongoing business relationships, may be better suited for arbitration, as it can help maintain the relationship and avoid negative publicity.
Another factor to consider is the desired outcome. Litigation may be better suited for parties who want a public record of the dispute and a court-ordered resolution. Arbitration, on the other hand, may be better suited for parties who want a more private and efficient resolution.
Both arbitration and litigation have their benefits and drawbacks. While litigation is a more formal and costly process, it may be preferable for certain disputes. Arbitration, on the other hand, will be private, in a location of your choosing, and more flexible. In most cases, the agreement to arbitrate is made long before any dispute arises, so if you think arbitration might better serve your business, reach out to us to discuss how and when to include an arbitration clause in your contracts