Drafting An Enforceable Arbitration Agreement

Whether it is a good idea or not to include an arbitration clause in your business contracts is an individual decision. You, along with your business law attorney, should consider your business, and weigh it against the pros and cons of arbitration, before making that decision.

But once you’ve made the decision to require arbitration in any lawsuits that you are involved in, comes the next step: how do you draft arbitration agreements that are enforceable?

Are they Enforceable?

As a general rule, arbitration agreements in contracts are enforceable. However, because arbitration cuts off a party’s right to access to a court, and the right to have a decision determined by  jury, they are looked upon with scrutiny by a court.

You can often expect the other side to your lawsuit, to challenge the arbitration agreement, especially if they are the ones suing you—claimants or Plaintiffs tend to disfavor arbitration.

All this means you need to have an arbitration agreement that is both legally binding, and one that works to your advantage.

Disclosures

The first step in making sure your arbitration agreement is enforceable, is making sure it is disclosed clearly. Your arbitration agreement, if it is included as a part of a larger agreement, should be set off from the rest of the agreement, and not buried in loads of small font type.

The disclosure should say that someone may be giving up their right to a jury, although you don‘t have to give a detailed explanation of what arbitration is.

For online agreements, you may want to consider a separate checkbox or radio dial button, where the user acknowledges the arbitration clause.

Distribution of Costs

Arbitration may have costs included in it, such as the arbitrator’s fees, or the fees for just using the arbitration service. You should tary to make the division of these fees fair. Avoid saying that the other side has to pay the entirety of the arbitrator’s costs, or that the other side has to pay your fees or costs incurred traveling to arbitration.

Arbitration agreements where the costs are unequal, are prone to being struck down by a court. This is especially true where the parties may have an unequal ability to pay, such as an employee-employer lawsuit.

Don’t Alter Existing RIghts

Imagine that a law says that the winning party under the given law, gets attorneys fees. But in your agreement, it says that each party will bear their own attorneys fees, no matter what the outcome of the case. Your arbitration has now taken away rights that someone would have under a federal law (specifically, the right to attorneys fees).

These provisions can subject an arbitration clause to being declared invalid. Try not to include any language that limits the rights someone would normally have under a contract or a law.

Let us help you review your business contracts and agreements. Call the West Palm Beach business litigation attorneys at Pike & Lustig today for help today.

Sources:

natlawreview.com/article/enforceability-arbitration-clause-construction-agreement#:~:text=Thus%2C%20in%20order%20for%20the,to%20a%20Trial%20by%20jury.

lexisnexis.com/authorcenter/the-journal/b/pa/posts/drafting-enforceable-arbitration-agreements-hottest-issue-in-contract-law