What is this “arbitration” term in my contract?

In today’s internet age, it has become common for business owners to pull a generic contract off of the internet and use it for their business.  Invariably, once something goes wrong, the client will come to us to help them settle the dispute. Unfortunately, internet contracts are not individually crafted for the individual client’s needs and sometimes clients dispute options are limited by the terms of the contract itself.  Because of this, the first section I look for when reviewing the contract is the dispute resolution section and if the parties have agreed to arbitrate the dispute.

Arbitration is a way to resolve contract disputes without going to court. Many contracts contain arbitration clauses, but what those clauses contain can vary greatly. For example, arbitration clauses can be mandatory, meaning you must go to arbitration before suing on the contract, or voluntary, meaning the parties may agree to arbitrate before going to court.

Additionally,  arbitration can be binding or non-binding. Binding arbitration results in a final decision that a court likely won’t have the power to revisit. Essentially, binding arbitration limits access to the courts, and may preclude it entirely. Non-binding arbitration, however, does not result in a final decision; its result does not bind the parties. Non-binding arbitration is therefore an opportunity to settle disputes before going to court, not in lieu of going to court.

Whether or not an arbitration clause is the right course for your company, and if so, which type of arbitration clause is appropriate depends largely on the circumstances. If you are in a highly specialized area, arbitration may be the right choice for you.  Conversely, if you want to preserve your right to go to court but don’t want to litigate every nuance of a contract; voluntary, binding or non-binding arbitration may suit your needs.

Whether or not arbitration is right for you is contingent on your individual circumstances.  The attorney’s of Winslow & McCurry can help you decide what is best for your business as well as help you craft an appropriate contract for your individual business needs.  Feel free to contact us for a consultation at 804.423.1382.