When doing business with clients and associates, contracts are the norm. Contracts ensure all parties understand the agreement they are entering into. Contracts also provide guidance should issues arise. That is why many contain clauses regarding dispute resolution.
Some contracts specify that matters can only be solved through arbitration, which is a type of alternative dispute resolution. Arbitration clauses are often followed up by stipulations that the loser of arbitration must pay the opposing side’s legal fees. Kiplinger explains why these common contract clauses are not always best for you.
Problems with arbitration clauses
Arbitration can sometimes be favorable, but it has drawbacks depending on the situation. For example, these clauses prevent you from having the issue tried in front of a jury. If you feel a jury might be more sympathetic to your side of the argument, a trial would be in your best interest. If you use arbitration to settle disputes, you also lose your right to appeal the decision. While most arbitrators make decisions with respect to the law, there is always the chance that yours might make a legally questionable decision.
Problems with clauses related to payment of legal fees
Arbitration is often more expensive. In addition to paying attorney fees, the costs for hiring an arbitrator must also be covered. If you lose the case, you will be responsible for all costs for both sides, which can be exorbitant. It can also negatively affect the relationships between two businesses. For instance, if one business is in a better position financially, they might take advantage of the fact that the loser of arbitration will be responsible for all fees. This leaves the business with fewer funds at a disadvantage, as the owner may be reluctant to dispute practices if they are concerned about the outcome of arbitration.
Arbitration is not inherently bad. In fact, it can be beneficial in many ways. Arbitrators can be chosen based on their experience and expertise, which means they will be better suited to making decisions about your case. The point is that arbitration is not always the best course of action for every matter, and you should have some control over the type of dispute resolution you use.