Does Your Contract Contain Arbitration Clauses?
Arbitration clauses can be found in most contracts. Indeed, many of the documents that people sign on a daily basis contain them. But many people wonder, are arbitration clauses binding? With so many variations, the answer may be complex. First, it is necessary to understand arbitration and how these clauses are utilized.
What is Arbitration?
Arbitration is a form of alternative dispute resolution involving one or more neutral third parties who are usually agreed to by the disputing parties and whose decision is binding. In other words, it utilizes the services of a professional independent third party (the arbitrator) to help guide the disputing parties to agreement.
Arbitration is similar to mediation in that it helps parties to resolve issues outside of court, but unlike mediation, arbitration is typically binding.
Arbitration clauses are contractual provisions mandating arbitration—and thereby avoiding litigation—of disputes about the contracting parties’ rights, duties, and liabilities. These clauses are in most contracts today. Many people are unaware of them and usually have no need to worry about them, but in situations where problems arise, many people are surprised to learn that they must seek resolution through arbitration.
Problems with Arbitration Clauses
One of the most serious problems with arbitration clauses is the requirement to utilize arbitrators that have already been chosen by the party providing the contract. This can be problematic for several reasons: First, by agreeing to the contract you are also agreeing that you will not file a lawsuit when a dispute occurs (i.e., you give up the right to file suit). Second, the arbitrator/arbitration panel is often pre-selected and may be named in the contract. Not only must you participate in arbitration, but you must also utilize the arbitrator chosen by the other party.
What can you do? Always read the contract
Arbitration clauses are often part of the “fine print” of the contract. Despite many jurisdictions requiring the clauses to be conspicuous, they often get lost in the minutia of the various terms of the agreement.
Even if you read the arbitration clause, there may be nothing you can do about it. Some companies require the clause be included, or they will not execute the contract. However, with smaller contracts, or those that are unique, an arbitration clause may be eliminated or at least changed to provide a fair agreement. Under either circumstance, if you read the contract and the language of the arbitration clause, you will be informed of the obligation and avoid surprise should a dispute occur later down the line. Call the skilled attorneys at Udall Shumway PLC to assist with your contracts.
This blog should be used for informational purposes only. It does not create an attorney-client relationship with any reader and should not be construed as legal advice. If you need legal advice regarding Arbitration Clauses, or any other litigation matters, please feel free to contact Udall Shumway PLC at 480.461.5300, or log on to udallshumway.com, or contact an attorney in your area. Udall Shumway PLC is located in Mesa, Arizona and is a full-service law firm. We assist Individuals, families, businesses, schools and municipalities in Mesa and the Phoenix/East Valley.
 Arbitration, Black’s Law Dictionary (10th ed. 2014).
 Arbitration clause, Black’s Law Dictionary (10th ed. 2014).