Arbitration Clauses

A growing trend is to add “arbitration clauses” to contracts. These clauses state that you give up the right to sue in court if there is a dispute. Instead, you have to go to binding arbitration. Arbitration means that instead of going before a judge and/or jury, your dispute will go before trained professionals (usually lawyers) who make a decision. Most of the time there is no appealing the decision. Whatever it is, you’re stuck with it. Good or bad.

Read the fine print. Chances are, you or your business are already party to contracts with arbitration clauses. Many credit card issuers (including all of the top 10 issuers), have them in their contracts. These clauses now routinely appear in health club memberships, pest control contracts, automobile contracts, insurance agreements–you name it.

We are already seeing small and medium size businesses adding such provisions to standard contract forms. There are many pros and cons, and each business should consult with its attorney, of course. But for background information, consider this:

(1) Filing an arbitration claim is more expensive than filing a small claims case. For businesses that are subjected to small claims cases frequently, arbitration can be a help.

(2) With arbitration, there is no such thing as a class action lawsuit. For business that worry about being harassed by the threat of class action lawsuits, arbitration can give added piece of mind.

I expect we will see the arbitration clause trend continue, even among smaller enterprises. This could mean a growth surge for attorneys who serve as arbitrators with organizations such as the American Arbitration Association and the like. Also, attorneys who serve the SMB market will do well to brush up on their understanding of arbitration clauses and how to use them to protect their small and medium business clients.

Anita Campbell Anita Campbell is the Founder, CEO and Publisher of Small Business Trends and has been following trends in small businesses since 2003. She is the owner of BizSugar, a social media site for small businesses.