Could an Arbitration Agreement Help Protect Your Company?

Your company’s contracts have a substantial impact on its long-term success and also its liabilities. Whether you execute contracts with customers or with your own workers, one of the issues you need to address is the possibility of a future conflict.

If there is a disagreement about your company’s contractual obligations to a worker, customer, client or vendor or vice versa, having rules in writing about how to resolve that conflict could save your business money and even protect your relationship with the other party involved.

Despite some people’s apprehension about them, arbitration agreements in contracts can be very valuable to businesses.

Arbitration Gets an Unfair, Bad Rap

Arbitration is a process not unlike what happens in court. A neutral third party reviews the situation and then determines what is appropriate and reasonable given the circumstances. In arbitration related to a contract conflict, the arbitrator reviews the contract and enters a ruling about what obligation actually exists between the parties and how to resolve the conflict.

Some businesses shy away from requiring arbitration to resolve disputes. However, arbitration is cost-effective for all parties involved. The reason companies worry about using arbitration is that it’s commonly associated with aggressive or even abusive business practices. There have been cases where powerful businesses have included forced and binding arbitration clauses on customers and employees in the past, putting the workers or customers at a significant legal disadvantage.

Allowing the other party to the contract to dispute or appeal the outcome of the arbitration or to pursue legal action after failed alternative dispute resolution process can be a way to make such an agreement fairer to all parties. Having the rights contract terms could help protect your business from future contract disputes.