Arbitration provisions are increasingly common in contracts, offering an alternative dispute resolution mechanism. In deciding whether to include an arbitration provision, small businesses should consider the following:
- Efficiency: Arbitration can be quicker and more efficient than court litigation, saving time and resources.
- Flexibility: Parties have more control over the arbitration process, including the choice of arbitrator and the rules of procedure.
- Confidentiality: Unlike court proceedings, arbitration is private, protecting sensitive business information.
- Cost: Arbitration can be expensive, with parties bearing the costs of the arbitrator and the arbitration institution. Depending on the amount of damages and the complexity of the dispute, this could be tens of thousands of dollars.
- Limited Appeal Rights: Arbitration decisions are final and binding. There are few, limited grounds for appeals.
- Lack of Transparency: The private nature of arbitration can lead to a lack of transparency and inconsistency in decision-making.
While arbitration provisions offer a viable alternative to court litigation, they are not without their drawbacks. Small businesses should carefully consider these factors before opting for arbitration in their contracts.