The Benefits of Arbitration

Posted by: Rod Kurtz on January 10, 2006

Should you include an arbitration provision in a contract? If you include a contract clause requiring arbitration, then any
disputes “arising under or relating to” the agreement will be arbitrated. This allows you to avoid a lawsuit and instead hire
one or more arbitrators — professionals trained to evaluate disagreements — to rule on yours.

Arbitration is cheaper and faster than a lawsuit, so it’s usually a good idea to include this provision. But arbitration has
some drawbacks. Unlike a court ruling, an arbitration decision cannot be appealed (that’s why it’s called “binding
arbitration”) and can be set aside by a judge only if you can prove the arbitrator was biased or the ruling violated public
policy. Also, arbitrators must be paid, and their fees may run into many thousands of dollars. Participants in arbitration
usually hire attorneys, so if there is an attorney-fees provision in your contract — a clause that requires that the loser
pay the winner’s fees — you may have to pay legal fees, too.

Richard Stim
Author, Whoops I’m in Business: A Crash Course in Business Basics
San Francisco

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