January 2024: Should My Contracts Include a Mandatory Arbitration Clause?

 

I'll give you my best (or worst) lawyer answer--it depends. I know, I hate that answer as much as you do, but there's truly no uniform answer to that question. Here are just a few things to consider.

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First, arbitration is more flexible than litigation. You can craft your arbitration clause to set many of the ground rules for arbitration. For example, you can make the arbitration process private and confidential, so the parties avoid the same publicity that comes with litigation. And the arbitration result can be binding, so there can be much more limited appeal process from an arbitration decision than there is on appeal from a court decision.

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Second, arbitration fees can be more expensive than litigation. You will typically have to pay higher upfront filing fees in arbitration than in court. You will also generally have to pay the fees charged by the arbitrator (or arbitrators), who is usually a lawyer, so you'll effectively be paying the fees of at least 2 lawyers during arbitration--yours and the arbitrator's.

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Third, an arbitration clause may not work in all situations. There is a recent trend at the federal level to prevent employers from forcing employees to arbitrate certain employment claims instead of litigating them in court (think sexual assault or sexual harassment claims). And then there are state-specific hoops that state courts (including the Pennsylvania courts) have said online arbitration agreements must jump through to be enforceable.

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This isn't a complete list of all the things you'll need to consider in deciding whether to have an arbitration clause in your agreements (such as employment/independent contractor agreements and other commercial contracts). If you do decide an arbitration clause is a good idea, you'll need a clause that threads all the various legal needles so that it is valid and enforceable.

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There are no general, simple answers to these questions. Contact the Barron Law Office to discuss the solution that's best for your business.

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