Arbitration Clauses in a Contract: Benefits and Pitfalls of Using Arbitration to Resolve Disputes
Arbitration is a private dispute resolution process where parties agree to have a neutral third party (arbitrator) decide, after reviewing the evidence and hearing the arguments. It is not uncommon for commercial contracts to contain pre-dispute arbitration clauses that mandate the arbitration of any dispute that might arise. Here, our Fremont contact dispute lawyer explains how contract arbitration provisions work and highlights the advantages and disadvantages of using arbitration to resolve a dispute.
An Overview of Arbitration Clauses in California
Arbitration clauses in California contracts are provisions that require parties to resolve disputes through arbitration rather than litigation. You may also hear these referred to as a forced arbitration clause or a mandatory arbitration provision. The California Arbitration Act generally upholds the enforceability of pre-dispute arbitration clauses. Indeed, a California court will typically enforce these provisions so long as they are clear, voluntary, and do not unfairly disadvantage one party, except when arbitration clauses are against public policy.
The Advantages of Using Arbitration for a Contract Dispute
A Faster, More Efficient Resolution
One of the primary advantages of using pre-dispute arbitration clauses in contracts is that they promote a faster and more efficient resolution when a dispute arises. In contrast to litigation, arbitration can be completed far more quickly.
Cost Effective
Another advantage of arbitration for contract disputes is that it can save money. Arbitration is generally less expensive than litigation. It avoids many of the procedural complexities (and the costs) that are typically associated with commercial litigation.
Full Privacy
Finally, arbitration is a confidential process. In California, arbitration proceedings are private. As such, they can help businesses protect sensitive information. On the other hand, litigation can become public record in California.
The Disadvantages of Using Arbitration for a Contract Dispute
Very Little Ability to Litigate
As noted, California law (and federal law) strongly favor the enforcement of pre-dispute arbitration contracts that have been voluntarily agreed to by the parties. Mandatory arbitration means that the parties to the contract will generally lose the right to litigate their case.
Lack of a Comprehensive Discovery Process
Litigation of a contract dispute allows for discovery. In contrast, arbitration limits formal discovery processes. That can save time and money, but it can also make it harder for parties to gather evidence—especially if relevant information is in the control of the opposing party.
Limited Appeal Rights
While it is technically possible to appeal the decision of an arbitrator, that appeal can generally only be brought on very limited, narrow grounds. You do not have full appeal rights in arbitration. Arbitration decisions are usually final and binding.
Contact Our Fremont Business Arbitration Lawyer Today
Lynnette Ariathurai is a California business lawyer with the skills and experience to handle arbitration matters. If you have any questions about arbitration, a contract dispute, or a related matter, please do not hesitate to contact us today for a confidential consultation. With an office in Fremont, we serve clients throughout the Bay Area.