Should I Have an Arbitration Clause in My Business Agreements?

When entering a business agreement with another party, you must be careful. While you may currently have a good relationship with the other party, things can change. A business relationship can start as pleasant and productive, only for it to deteriorate into a bitter and contentious one. For this reason, you must stay prepared. If you do not take steps to prepare for the possibility of business disputes, you could suffer devastating consequences.

One of the ways business people build protections into business contracts is by including arbitration clauses in the agreements. An arbitration clause requires that disputing parties submit to arbitration when a dispute arises. This means that the parties will not go to court but will instead work with an arbitrator or panel of arbitrators to resolve their dispute. When it comes to arbitration, business agreements usually require binding arbitration. However, a business contract can also allow for non-binding arbitration.

As a business owner, you may be wondering, “Should I have an arbitration clause in my business agreements?” There is no straightforward answer to this question. Whether or not you should include an arbitration clause in your business agreements depends on various factors. You should consider several things before deciding whether to have an arbitration clause in your business contracts.

Before deciding whether to include an arbitration clause in your business contracts, it is advisable that you speak to a business lawyer. An attorney can offer you guidance based on the specific nature of your business and other factors. A skilled business lawyer can help you weigh the pros and cons of arbitration.

If, after speaking to a business attorney, you determine that you should include an arbitration clause in your business agreements, the next step is drafting an arbitration clause. It is best to let an attorney help you create an arbitration clause. Without the proper knowledge, it can be challenging to draft an arbitration clause. If you try to create an arbitration clause without professional help, you may end up with an unenforceable clause. A business attorney possesses the necessary knowledge. An attorney can help you draft an enforceable arbitration clause.

When you meet with a business attorney, there are several things that you need to discuss. The following are some of the issues you need to discuss with a business attorney when creating an arbitration clause;

• What matters will be arbitrated? You could word the clause broadly to encompass all contract disputes, or arbitration could be an option for specific disputes. In other words, you could maintain the right to sue in regard to particular types of disputes.
• Who will arbitrate disputes? For example, must you use an arbitrator from the AAA or JAMS?
• What are the rules? For example, what are the rules of discovery? Is discovery unlimited or limited? Is arbitration binding or non-binding?

If you need help determining whether you should include an arbitration clause in your arbitration contracts, contact a qualified San Jose business attorney at SAC Attorneys LLP.