Business Use of Arbitration Clauses

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Most Common Business Law Issues:

Why Do Businesses Use Arbitration Clauses?

More businesses are including "arbitration clauses" in their consumer user agreements and contracts as a way to quickly and quietly resolve disputes. Arbitration clauses allow business to avoid the formal Court system, which many businesses feel is more expensive and time consuming.  

What Type Of Businesses Use Arbitration Clauses?

Many types of business use arbitration clauses. However, it is very common in the following industries:

Arbitration clauses are usually found deep within a consumer user agreement or contract. The section will be labeled "binding arbitration", "arbitration clause", or "alternative dispute resolution". If you don't have a copy of your user agreement or contract, contact the business directly and request a copy.

Will an Arbitration Clause Prevent Me from Joining a Class Action Lawsuit?

An arbitration clause will generally prohibit an individual from joining a class action lawsuit against a business. This means that if a consumer claims a loss of a few hundred dollars, they can only sue for that lost money, and not join a class action lawsuit with similarly effected consumers. With relatively little money at stake, it is often difficult for a consumer to find an attorney willing to take the case.

Are Arbitration Clauses Bad for Consumers?

Arbitration clauses are generally considered bad for consumers because they prohibit a consumer from filing a lawsuit in court. Instead, the consumer must argue their disputes before a neutral arbitrator. Arbitrations are more informal proceedings, and many times consumers will not seek help from an attorney, who could fully inform them of their rights.

Businesses tend to be much more capable and experienced in arbitration disputes than an individual consumer, especially if the consumer has not consulted a lawyer. However, many people find arbitration to be a much less frightening experience than going to court because there are fewer formalities.

Can I Appeal a Decision?

In certain situations the award of an arbitrator can be appealed and taken to Court. This is most common if the parties agree to non-binding arbitration. However, in most circumstances the arbitration is binding and may not be appealed or taken to Court. 

Do I Need an Attorney For My Arbitration Dispute?

It is very likely that a business will be represented by an attorney at the arbitration. While it is not necessary for an attorney to be present at the arbitration, it may be helpful for you to also have an attorney representing your interests. At the very least it is wise to consult a lawyer for advice about what to expect at an arbitration proceeding.

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Last Modified: 01-22-2014 04:01 PM PST

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