No one ever wants to deal with a conflict within their business, but that does not mean it never happens. Unfortunately, there are disputes between business partners all the time, and many of them would like to avoid going to court if they can. Luckily, there are some ways you can protect yourself from having to go to court in these types of situations. One of those ways is through an arbitration agreement. An arbitration agreement is a simple document, but it does have a lot of different components and limitations that you need to understand before you sign anything.
Unless you have a legal degree or have worked in the field, you may not even know what arbitration is, which can make it difficult to understand why you would need an agreement for it. Arbitration is a way to avoid a lawsuit or going to court when you need to resolve a dispute. While the process for arbitration may be similar to a court proceeding in many ways, it is a way of avoiding going to court. The arbitration process involves lawyers for each party, an exchange of information about the situation, a hearing of sorts that includes bringing in any witnesses, and the opportunity for each side to present their case for the situation. At the end of this process there is an arbitrator, like a judge, who will make the final decision. The arbitrator could be an attorney who is impartial to either side, a retired judge, or another type of individual with experience in the legal field.
Arbitration is a much more informational method when compared to a court proceeding or even litigation because it is a simplified procedure. Also, during arbitration, each party has a more limited right to try to get documents or other types of information from the other party. The entire process will take place in a conference room instead of a courtroom.
Something to also keep in mind is that with arbitration, the majority of agreements are binding and you cannot go to court to resolve the conflict again simply because you did not like the outcome.
You cannot simply opt for arbitration unless you have an arbitration agreement in place that is signed by both parties. With an arbitration agreement, both parties will agree to arbitrate any dispute in the future, or a current dispute, instead of going to court. Typically, arbitration agreements are signed at the beginning of a business relationship before there is any disagreement. There is the hope that this will never need to be used, but in case there is some kind of disagreement this will be the way to determine how it will be resolved. There is also an option for parties to agree to arbitration once there is a conflict, and even after a lawsuit has been filed, if they wish to do so. This can only happen if both parties agree to this option at the time of the dispute, and there is no guarantee of that happening. An arbitration agreement can be between two businesses, a business and an employee, a home owner and a builder of a home, a business and an individual, a business and a labor union, and much more. If two parties are doing business together, then it is recommended that they both sign an arbitration agreement for their work together.
Before you decide whether you want to have an arbitration agreement, it is important to understand the benefits of having one in place for your business and any other businesses or individuals you may work with. These are some of the main benefits of using an arbitration agreement for all business relationships:
While there are some definitive benefits of using an arbitration agreement, there are also some disadvantages that you should be aware of as well. Knowing both sides can help you to make the best decision for your business. These are some of the main disadvantages:
An arbitration agreement does not have to be very long to be enforceable. In most cases, it is a short blurb in a larger contract or agreement. It is usually labeled as "Arbitration" or "Dispute Resolution." However, they can also be found in employment contracts or within an employee handbook in the case of employee arbitration agreements. This clause will generally say that any and all disputes between the two parties will be subject to a binding arbitration instead of being given the opportunity to go to court. Additionally, you may find in some contracts that only certain disputes can be arbitrated instead of a blanketed statement for all disputes. For arbitration agreements that are a bit more in depth, they may mention how arbitration will be conducted and if there are any limitations as to where it can occur. There may be a section that details specific arbitration rules that must be followed, such as American Arbitration Association (AAA) rules. There may even be a specification about whether or not there will be one arbitrator or several and how these people will be chosen for the arbitration.
If you opt to have a separate arbitration agreement outside of the documents mentioned above, you will need to include a few other components including the full name and address of both parties, the type of relationship there is between the two parties, whether or not there is currently a dispute between the two parties at the time of signing, where the arbitration must take place (such as the specific state), the effective date if it is different from the signing date, and any other specific details you want to include. An arbitration agreement does not need to be a long and complicated legal document, but it does need to include these basic items so that if there is ever a dispute, there is no question as to how it will be handled and what the process will be.
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