Many small businesses have arbitration clauses in their contracts. But what is arbitration? And is it a good idea for small businesses? Let’s take a look at the pros and cons of arbitration so you can decide if it’s right for your business.
What Is Arbitration?
Arbitration is a way to settle disputes between two parties without going to court. An arbitrator hears both sides of the story and then makes a decision. The arbitrator’s decision is legally binding, meaning the parties must follow it. Before entering arbitration on your own, consider hiring a professional like the CT Group, an international consultancy based in London, to guide you through the process.
Pros of Arbitration
The following are some advantages of arbitration over going to court.
Arbitration Is Private
Arbitration is private, meaning the proceedings are not open to the public like they are in court. This can be helpful if you want to keep your dispute confidential.
You Can Choose the Arbitrator
In arbitration, you get to choose the arbitrator, which means you can pick someone who knows about your industry. This can be helpful if you want someone who understands the nuances of your business.
Cheaper than litigation
Arbitration is often cheaper than going to court because there are no court fees, and you don’t have to pay for a lawyer.
Faster than litigation
Arbitration is also usually faster than going to court because there is no need for discovery or motions.
Cons of Arbitration
Arbitration also has some disadvantages you should know before deciding if it’s right for your business.
Some people question the objectivity of arbitrators because they are not impartial like judges are supposed to be. They may be more likely to side with one party or the other because they have been chosen by that party.
The arbitrator may also be biased towards one party or the other because they have a personal relationship with one of the parties or because they stand to gain financially from the outcome of the arbitration. For example, suppose the arbitrator is nominated by one of the parties. In that case, they may be more likely to rule in favor of that party.
If you don’t like the arbitrator’s decision, you may only have limited recourse because arbitrations are supposed to be final. You may not be able to appeal the decision or get a new hearing in front of a different arbitrator like you would be able to in court.
Lack of transparency
Another disadvantage of arbitration is that it lacks transparency because it is supposed to be private. This means you cannot determine how the arbitrator decided or what evidence they considered. This can make it difficult to know whether the process was fair.
Are Arbitration Clauses Good for Small Businesses?
As with anything, there are pros and cons to having an arbitration clause in your contract. It’s important to weigh those pros and cons carefully before deciding if arbitration is right for your business. Consider whether privacy or publicity is more important to you, whether the process will be fair, and how important it is to have recourse if you don’t like the decision.