When it comes to signing a contract, it`s important to read the fine print. One of the most important clauses to look out for is the arbitration clause. In this article, we`ll define what an arbitration clause is and how it works.
An arbitration clause is a section of a contract that requires disputes to be resolved through arbitration instead of going to court. Arbitration is a process where a neutral third party, called an arbitrator, hears both sides of a dispute and makes a decision that is binding on both parties.
Arbitration clauses are often included in contracts for things like employment agreements, service contracts, and consumer agreements. They are also commonly found in contracts for financial products, such as credit cards and investment accounts.
There are a few reasons why companies might include an arbitration clause in their contracts. One reason is that it can be cheaper and faster than going to court. Arbitration can also be more confidential, which can be important in cases where sensitive information is involved. Additionally, companies may prefer arbitration because they can choose the arbitrator, which can give them an advantage in the outcome of the dispute.
However, there are also some drawbacks to arbitration clauses. One of the biggest concerns is that they can limit a person`s legal options if a dispute arises. For example, if you sign a contract with an arbitration clause and you later have a dispute with the other party, you won`t be able to take them to court. You`ll be required to go through the arbitration process instead.
Another concern is that arbitration awards are generally not subject to appeal. This means that if the arbitrator makes a mistake or is biased, there may be no way to correct the decision. Additionally, arbitration clauses can be used to prevent class-action lawsuits, which can limit the ability of a group of people to bring a case against a company.
In summary, an arbitration clause is a section of a contract that requires disputes to be resolved through arbitration instead of going to court. While there are some advantages to arbitration, it`s important to carefully consider the potential drawbacks before signing a contract with an arbitration clause. If you`re not comfortable with the arbitration process, it`s important to negotiate changes to the contract or find an alternative agreement that better fits your needs.