It’s easy to plug in a standard arbitration form into your business or employment contract and think that you’ve covered yourself. If only it were that easy. A sophisticated client recently had to good sense to ask me to modify the standard arbitration clause. The client saw the arbitration forum as a quicker and less expensive way to resolve disputes. This can be true, but the devil is in the details.
For example, some arbitration agreements or clauses call for a panel of three arbitrators. Guess what? You just tripled the cost of arbitration. Arbitrators do not work for free. The parties pay them for their time. I don’t begrudge their getting paid for their work, but they are expensive. In a perfect world, three arbitrators would be nice. But I reserve that for disputes that will have very significant dollar values. Otherwise, arbitration becomes cost-prohibitive.
You may want to have a mediation requirement prior to entering into arbitration. Mediation can be an excellent way to resolve disputes. And it’s much cheaper and quicker than arbitration.
You may want to specify the type of arbitrator who will be chosen. If you have a construction contract at issue, you will want an arbitrator with experience in the construction industry or construction law.
You will want to consider what rules apply to the arbitration. Most arbitration firms have different sets of rules, including expedited procedures for quick resolutions.
You should consider where arbitration should be held. Arbitration in another state will cost you time and money. Of course you want to agree to your home forum in most circumstances.
Finally, consider the scope of the arbitration clause. Not all disputes lend themselves well to arbitration. For example, you may want a carve out for injunctive relief and prejudgment security.
If you need help drafting an arbitration clause or modifying your “standard” clause, please call me at 617.338.7000.
By Adam P. Whitney
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