If you are a business owner or if you are in the process of starting a new business then contracts are going to be a part of running your operations. When you sign and enter into a contractual agreement it is important to understand exactly what is in it and how the terms can affect you. While arbitration provisions are common, they may not always be the best for a particular business’s needs. So considering using one and what will be included in that arbitration clause is essential.
It is good practice to have experienced legal counsel help you read through the contracts that you are thinking about signing or developing yourself. There could be red flags that may affect you significantly. For businesses in California, please contact the Los Angeles business litigation attorney at Leiva Law Firm.
What Issues Could Arise with an Arbitration Clause?
The reason that arbitration clauses come up so frequently is that disputes happen often. In these situations, an arbitration clause will have the parties involved go through the process of arbitration instead of having to go through the courts to come to a resolution. The courts typically encourage arbitration because it can be a faster and less expensive way to resolve disagreements. However, the arbitrator has broad powers for determining the outcome of a contractual dispute. So, if the decision that is made is unfavorable to a business owner and not in their best interest their ability to have the decision reviewed and changed is limited.
When an arbitration clause is signed it is an agreement between those that enter into a contract and the clause can be written to detail the amount of power an arbitrator has. Therefore, it could be a better approach to use language in the provision that provides limits. Making sure that there is the ability to reduce the scope of an arbiter’s authority may be the right way to structure an agreement.
While general provisions that exist with arbitration clauses are routine, a business owner signing or adding one of these to a contract should think about what that actually means. Here, the arbiter has incredible powers to evaluate a dispute and make a decision based on what they believe is correct even if the outcome is detrimental to you or your business. And trying to reverse the decision is not easy and could be impossible.
Determining if an arbitration clause should be used in a contract and how it should be written are two important factors to think about when you are putting together a contract or reviewing one to sign. The arbitration method may be the preferred way to resolve contractual issues which is why they can be accepted easily without a second thought. But it is important to understand what could happen when an arbitrator has expansive powers in such situations.
Speak with a Los Angeles Business Litigation Attorney Today
If you have a dispute with a contract or if you would like to have a contract reviewed, please contact the Los Angeles business litigation lawyer at Leiva Law to schedule a free consultation by calling (818) 519-4465.