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Should you have an arbitration clause in your contracts?

Disputes between business partners and between employers and employees are unfortunately not uncommon. They arise from broken promises, violations of a person's rights, accusations of fraud and other similar situations. Unless these disputes are simple understandings that are easily fixable, it is likely that more formal dispute resolution efforts may be necessary.

You might assume this means litigation, but, as is the case with many companies across California, it often means arbitration. Arbitration is an alternative dispute resolution method that many employers prefer for a number of reasons.

  1. It can keep a dispute out of the public eye. This can be crucial for companies that have a vested interest in protecting their image and reputation.
  2. Arbitration can be less expensive than litigation. This is because the proceedings are less formal and they don't require the extensive resources that court trials do.
  3. You can get a resolution faster. With arbitration, there is no need to work around court schedules, and because it is a less formal process, there are often fewer documents that must be filed and processed.
  4. The ruling can be final. Some employers prefer the finality that can come with arbitration, as it allows them to settle the matter and then move forward without appeal after appeal.
  5. There won't be a jury. As noted in this FindLaw article on arbitration, juries can sometimes be more sympathetic to people like an employee or other individual who is involved in a dispute with a company.

For these and many other reasons, you may feel that you, as an employer, prefer to resolve business or employment matters through arbitration.

If so, you can include arbitration clauses in various contracts you have with customers, partners and/or employers. However, you must be sure the clauses are enforceable and understand that you could lose relationships with people who choose not to sign these agreements.

Whether you are considering including arbitration clauses in your contracts or you are involved in a dispute requiring arbitration, it can be crucial that you speak with an attorney to avoid costly missteps.

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