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Is an Arbitration Clause Right for You?

The United States Supreme Court has recently ruled on an arbitration clause involving a consumer’s dispute with DirecTV. The case brings to light the question of whether including arbitration clauses in your business agreements may be right for you.

What is Arbitration?

Arbitration is a contractual clause that forces anyone who sues you to bring their case before an arbitrator instead of in court. Unlike in court, with arbitration, a judge or jury doesn’t make a decision on the case, the arbitrator does. The arbitrator is often a retired judge, or sitting attorney.

The process is much faster, and often more relaxed, with more lenient evidentiary rules and less discovery. As a result, many businesses like the process, believing that it reduces the costs of a full court case (although you still would need an attorney for arbitration).

Another advantage that many businesses see in arbitration is that it takes the case out of a jury’s hands, avoiding the common belief that juries are likely to award large verdicts to sympathetic consumers or victims. Thus, the emotion is stripped out of the case, benefitting those who may have strong legal arguments, but where the other party is more sympathetic.

Is an Arbitration Clause Right for You?

Whether arbitration is right for you depends on your business. If you have concern over being sued for significant damages—such as class actions—then arbitration may benefit you. If you deal with relatively small dollar transactions, or your business is not one likely to lead to large liability against any one client or consumer, then arbitration may not be necessary.

If your business is complex, or involves complex business transactions, you may prefer arbitration, so as to avoid having to explain the nature of your business transactions to a jury that may not fully grasp the issues.

Business to business companies may not reap as much benefit from arbitration, as it’s unlikely a jury would be more sympathetic to one business over another. But if you deal with consumers, or a class of clients that may elicit sympathy, you may be best served to include an arbitration clause.

Drafting Enforceable Clauses

Although the Supreme Court has upheld the enforceability of arbitration clauses, if the clause isn’t properly drafted, you may lose the right to arbitrate. Your arbitration clauses should be clear and conspicuous.

They should generally not prohibit anybody from recovering any damages they couldn’t otherwise recover in a “real” trial. For example, a clause that prohibits attorney’s fees may make it unenforceable, if a consumer sues you under a law that would otherwise allow fees to be recovered.

Plan ahead for potential problems and make sure you’re safe if a lawsuit should arise. Contact Tampa business attorney David Toback to discuss your needs and discuss how to make sure that your business is protected.

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