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Dispute Resolution: The Benefits of an Arbitration Agreement

No one ever wants to deal with a conflict within their business, but that does not mean it never happens. Unfortunately, there are disputes between business partners all the time, and many of them would like to avoid going to court if they can. Luckily, there are some ways you can protect yourself from having to go to court in these types of situations. One of those ways is through an arbitration agreement. An arbitration agreement is a simple document, but it does have a lot of different components and limitations that you need to understand before you sign anything.

What Is Arbitration?

Unless you have a legal degree or have worked in the field, you may not even know what arbitration is, which can make it difficult to understand why you would need an agreement for it. Arbitration is a way to avoid a lawsuit or going to court when you need to resolve a dispute. While the process for arbitration may be similar to a court proceeding in many ways, it is a way of avoiding going to court. The arbitration process involves lawyers for each party, an exchange of information about the situation, a hearing of sorts that includes bringing in any witnesses, and the opportunity for each side to present their case for the situation. At the end of this process there is an arbitrator, like a judge, who will make the final decision. The arbitrator could be an attorney who is impartial to either side, a retired judge, or another type of individual with experience in the legal field.

Arbitration is a much more informational method when compared to a court proceeding or even litigation because it is a simplified procedure. Also, during arbitration, each party has a more limited right to try to get documents or other types of information from the other party. The entire process will take place in a conference room instead of a courtroom.

Binding Agreement

Something to also keep in mind is that with arbitration, the majority of agreements are binding and you cannot go to court to resolve the conflict again simply because you did not like the outcome.

What Is an Arbitration Agreement?

You cannot simply opt for arbitration unless you have an arbitration agreement in place that is signed by both parties. With an arbitration agreement, both parties will agree to arbitrate any dispute in the future, or a current dispute, instead of going to court. Typically, arbitration agreements are signed at the beginning of a business relationship before there is any disagreement. There is the hope that this will never need to be used, but in case there is some kind of disagreement this will be the way to determine how it will be resolved. There is also an option for parties to agree to arbitration once there is a conflict, and even after a lawsuit has been filed, if they wish to do so. This can only happen if both parties agree to this option at the time of the dispute, and there is no guarantee of that happening. An arbitration agreement can be between two businesses, a business and an employee, a home owner and a builder of a home, a business and an individual, a business and a labor union, and much more. If two parties are doing business together, then it is recommended that they both sign an arbitration agreement for their work together.

What Are the Benefits of Such an Agreement for Dispute Resolution?

Before you decide whether you want to have an arbitration agreement, it is important to understand the benefits of having one in place for your business and any other businesses or individuals you may work with. These are some of the main benefits of using an arbitration agreement for all business relationships:

  • It is faster and less expensive – As you do not have to pay for filing and court fees, you will save money by choosing the arbitration option. It is also faster because you will be able to complete the entire process quicker than if you were to try to go to court over the same matter.
  • It is confidential – Using arbitration means that you will not have to publicly testify. No matter what, the details of the dispute will not be put on public record for anyone to find. Instead, they will be kept secret in the confines of the arbitration room so you can make sure that no negative details are leaked.
  • You can choose your arbitrator – If you include this as part of your arbitration agreement, you can have the ability to choose the arbitrator who will be determining the outcome of the dispute at hand. This can be a very helpful component if you want to try to find someone who may have some specific experience dealing with the type of dispute you have or someone who has a bit of experience in your field and can better understand what is happening as a result.
  • As an employer, you can refuse to hire someone who does not sign the arbitration agreement – You have the option of refusing to hire someone if they do not abide by your rules and sign your agreements. The arbitration agreement is part of that. This can also be related to not hiring another company to do work for you if they refuse to sign it. If you have something like this in place, you will want it to be active for everyone you do business with anyway.
  • You can avoid including a jury – When you have an arbitration agreement, you will not use a jury to help determine any disputes. A jury can be very beneficial in many situations, but they can also be very stressful in a situation where there is a business dispute or even in business matters. It does not usually make sense to use a jury and you can make sure you avoid the entire thing by having an arbitration agreement in place for all of your business relationships.
  • It can help you to avoid hostility – When a case goes to court, there is more of a likelihood that there will be constant disputes and fighting on every single issue. This added hostility may never go away and may even make it difficult for you to do business with others later on. However, arbitration is a much more relaxed kind of environment, and while there is an existing conflict, it can be a lot easier to manage without hostility because there is an arbitrator present. Both parties will have to cooperate with each other in order to reach a mutual agreement. This can lead to less hostility and can help keep the reputation of both parties intact.

What Are Some of the Disadvantages?

While there are some definitive benefits of using an arbitration agreement, there are also some disadvantages that you should be aware of as well. Knowing both sides can help you to make the best decision for your business. These are some of the main disadvantages:

  • You cannot appeal an arbitration decision – Once a decision has been made in the matter by the arbitrator, you cannot fight it any further. This means that you cannot then decide to take the matter to court and you cannot try arbitration again with another arbitrator simply because you did not like the decision that was made.
  • You cannot opt for a jury trial – By definition, arbitration does not include any other parties other than the two parties with their lawyers and the arbitrator or arbitrators. You cannot have a jury decide the matter, and if your case has to do with an employment dispute, this is something you want to avoid anyway because jury members tend to side with the employee more often than not.
  • The exchange of information between parties is limited – In arbitration, you may find that it is more difficult to form a case against the other party simply because there is more of a limitation on the exchange of information than if you were to go to court. In situations where the other party has more documentation and information, you may be at a disadvantage because they may not be required to share all of their information with you for the arbitration.
  • If you have this agreement before a dispute, it can be hard to determine if you want to arbitrate later – This is simply a matter of signing this agreement before there is ever a dispute. You may not ever have a dispute, but if you do and you decide that you do not want to arbitrate, then you will have no other option if you have already signed this agreement. If you try to go against it and void the agreement, you will likely spend a lot of money on legal fees in the process.
  • The arbitration agreement has the potential of being one sided – If you are not the party that has written the agreement, you may find out later that it was written in a way that favors the party who initially wrote it. Before you sign any arbitration agreement that you have not written, you should look for any signals that the other party will have an advantage. Ideally, you want to only sign an arbitration agreement that provides each party with an equal voice and will not limit you in the process. You also want to make sure that no agreement ever denies you the right to find your own attorney for the dispute and arbitration. You may run the risk of not doing business with that person or company if you refuse to sign the agreement, but if they will not alter it to be favorable to both parties equally, you are potentially saving yourself a lot of stress, time, and money later on.

What Are the Key Components of an Arbitration Agreement?

An arbitration agreement does not have to be very long to be enforceable. In most cases, it is a short blurb in a larger contract or agreement. It is usually labeled as "Arbitration" or "Dispute Resolution." However, they can also be found in employment contracts or within an employee handbook in the case of employee arbitration agreements. This clause will generally say that any and all disputes between the two parties will be subject to a binding arbitration instead of being given the opportunity to go to court. Additionally, you may find in some contracts that only certain disputes can be arbitrated instead of a blanketed statement for all disputes. For arbitration agreements that are a bit more in depth, they may mention how arbitration will be conducted and if there are any limitations as to where it can occur. There may be a section that details specific arbitration rules that must be followed, such as American Arbitration Association (AAA) rules. There may even be a specification about whether or not there will be one arbitrator or several and how these people will be chosen for the arbitration.

If you opt to have a separate arbitration agreement outside of the documents mentioned above, you will need to include a few other components including the full name and address of both parties, the type of relationship there is between the two parties, whether or not there is currently a dispute between the two parties at the time of signing, where the arbitration must take place (such as the specific state), the effective date if it is different from the signing date, and any other specific details you want to include. An arbitration agreement does not need to be a long and complicated legal document, but it does need to include these basic items so that if there is ever a dispute, there is no question as to how it will be handled and what the process will be.

How to Create an Arbitration Agreement

Use our arbitration agreement form to create an arbitration agreement in just a few minutes online.