Is Your Arbitration Clause Enforceable?
Whether an arbitration clause works in your favor or works against you, largely depends on who you are, and what side of the lawsuit you’re on—the party suing or the party being sued. Either way, you may look at a contract or agreement and wonder if an arbitration agreement is enforceable.
What is Arbitration?
Arbitration takes a legal dispute out of the hands of a jury, and even out of the hands of a judge. Rather, your case will be heard before an arbitrator, a neutral person appointed to make decisions in the case, and ultimately, to determine who wins the case. The arbitrator may be, but does not have to be, a judge.
Arbitration can settle matters faster, with less formality, and less expense. On the other hand, arbitration can also limit the amount of information you can get from the other side, and could take away your right to have a judge or jury hear your case.
Whatever the arbitrator decides is final. You cannot go to court afterwards for your trial, if you don’t like what the arbitrator decided.
Whether to include a provision in your contract requiring parties to a dispute to arbitrate is one that you should have with your business lawyer. If you do decide to include one—or if you signed an agreement already that contains an arbitration clause—your next question may be whether or not the agreement is enforceable.
Enforceability of Arbitration Agreements
Arbitration agreements must be carefully drafted to be enforceable. An arbitration agreement will be presumed to only relate to disputes arising from, or directly related to the contract, unless there is language to the contrary. That means that if you want the parties to arbitrate for any and all claims, no matter what kind, your arbitration agreement has to say just that.
For example, imagine that your business has a contract with a supplier that has an arbitration clause. While the supplier is in your store, delivering your goods, the employee of the supplier falls and injures himself. Does your arbitration clause cover the delivery person’s claim for personal injuries—or just disputes related to the purchase and delivery of the supplies (the subject of the contractual agreement)? The answer would depend on how broadly the arbitration clause was written.
Arbitration clauses should not take away a statutory right that a party would otherwise have. For example if the law allows for a party to collect attorneys fees if it wins, your arbitration clause could not take that right away in arbitration.
The arbitration clause should not place an undue burden on one side or the other but especially not on a party that is in a lesser position. For example, a provision that required an employee in a discrimination lawsuit to pay all of the arbitration costs, and the employer’s costs, would be subject to attack as being wholly unfair to the employee, a party with presumably fewer means and less sophistication than the employer.
We can help you drafty and review your contracts and agreements, or interpret one that you have already signed. Call Pike & Lustig, LLP at 561-291-8298 for a consultation. Our West Palm Beach business litigation attorneys can help answer your questions.