Many contracts these days include an arbitration clause. Perhaps you have seen the term arbitration used in service contracts with mobile phone companies and other businesses. They are common for a variety of reasons.

What is an arbitration clause?

An arbitration clause is a part of the contract where the parties promise that they will go through arbitration to solve a breach or dispute.

What is arbitration, and how does it work?

Arbitration is a form of alternative dispute resolution (ADR) independent of the court system. It has become quite popular over time because of its inherent benefits. When the parties decide they have a problem or breach they must formally address, they come before an arbitrator or panel of arbitrators. Each side presents its case just like it would in court, except arbitration has its rules and procedures, which are generally much more straightforward than those in the court system.

What is the role of an arbitrator?

An arbitrator is a trained professional tasked with evaluating the facts of the case presented before them, listening to both sides, assessing the evidence, if any, provided by the parties and rendering an award at the end once they have come to a decision. In most cases, arbitration is binding, which means that it is not subject to appeals and that, absent extraordinary circumstances, the parties cannot go to court to dispute the arbitrator’s award.

What are the benefits of arbitration?

Arbitration can be highly beneficial for business owners constantly dealing with conflicts. In the business world, it is common to have many disagreements at any given time, breaches of contracts (not all of which are worth going to court for) and problems that the parties must address.

Arbitration provides a private route to solve these issues in a cost-effective, faster way. It aims to be less adversarial than litigation. Suppose the opposing parties wish to continue working together after the arbitrator renders a decision. Ideally, the non-adversarial nature of arbitration will support that effort.

There are many options for solving conflicts and breaches of contracts. In many cases, arbitration is a very effective way to address and resolve those issues without going through the public, expensive and lengthy litigation process.