Many modern contracts include arbitration clauses. Large companies such as Meta, Verizon, and Apple all make use of arbitration clauses in their agreements with consumers. Knowing the potential drawbacks and benefits of arbitration can help consumers make better informed decisions about the contracts they agree to and can help companies decide if arbitration clauses should be included in their contracts.
An arbitration clause is a section of a contract which designates that future disputes will be resolved through arbitration or alternative dispute resolution rather than through courts. Certain private associations, such as the American Arbitration Association, will instead attempt to resolve the matter. As a business lawyer at Mughal Law Firm PLLC explains, sometimes this is through a process that is very similar to litigation, such opposing parties sending discovery requests to each other.
Arbitration clauses can be very controversial in some jurisdictions. Advocates of consumer rights have been very critical of arbitration clauses, stating that they are often written to be one sided and that they give far too much preference to parties with more bargaining power. Another reason why people are skeptical of arbitration clauses is that they have become so popular that entire markets have become dominated by companies that only provide services or sell goods on standard form contracts that provide no room for negotiation. Critics say that for a large category of goods and services there is no option for consumers to litigate consumers through the courts.
Advocates of arbitration claim that the arbitration process is more time efficient, less adversarial, and prevents business relationships from becoming too sour — a problem that can occur during a lengthy and costly litigation process through the government’s courts. Another benefit of arbitration is that it can save resources for the government. If you or your business is considering implementing an arbitration clause into your standard form contract, you may want to speak to an experienced contract lawyer in your area.
Arbitration clauses can be considered unenforceable in some circumstances. Companies that intend to put arbitration clauses in their standard form contracts have to be very careful to ensure that such clauses are transparent, clearly written, and comply with the laws of the state for which they intend to sell goods or provide services. Some arbitration agreements have been found to be unconscionable by courts, and therefore unenforceable. Furthermore, there are federal laws which limit what types of disputes can be covered under arbitration clauses.