Arbitration Agreement: Do I Want It?

Photo by: Marten van den Heuvel

Photo by: Marten van den Heuvel

You probably signed an arbitration agreement at your last doctor’s visit, when you signed up for your gym or yoga studio membership, or when you signed a listing agreement with your realtor. The ubiquity of these agreements makes it especially important for us to understand them as consumers, business owners, employers, and employees.

What is an arbitration agreement?

Arbitration is one of the alternative means of resolving disputes (alternative to filing a lawsuit that is). Thus, an arbitration agreement is an agreement to take disputes out of the court system to be decided by a private arbitrator (or a panel of arbitrators) usually following a different set of procedural rules than the court.

People and companies choose to arbitrate for various reasons. The process is generally more streamlined and allows for a quicker resolution of disputes. It is often times cheaper than litigating in court, and the proceedings are typically not part of the public record. Lastly, the conventional wisdom is that you reduce the risk of a run-away-jury.

Do you want to arbitrate?

Whether agreeing to arbitrate potential disputes is better than litigating them in court depends on who you are in the relationship and the types of disputes you anticipate.

If you answer “yes” to these questions, you may want to consider entering into an arbitration agreement.

  1. Are you concerned about keeping potential claims or disputes private and confidential?
  1. If there is a dispute between you and the other party, would they appear more sympathetic or likeable to a jury than you would thereby increasing the risk that a jury would give them a big award? This is usually why big companies require consumers and why employers want employees to resolve disputes in arbitration.
  1. Would a potential dispute require an understanding of highly technical or complicated facts that you would need someone with background in that area to probably adjudicate the dispute?
  1. Would you be in a better position to bear the cost of arbitration than the other side would?

This is not an all-inclusive list by any means. However, since you’re already using an attorney to help you draft or review your contracts, I highly recommend discussing whether you should agree (or not agree) to arbitrate future.

Best Practices

The enforceability of arbitration agreements is in flux and a lot depends on the circumstances and the terms of the agreement (whether a court would determine that they are procedurally or substantively unconscionable). Thus, to increase the likelihood that a court will enforce your arbitration agreement, have an attorney draft or review the agreement. Just yesterday, the Ninth Circuit (whose decisions bind a large number of western states, including California) struck down Ernst & Young’s agreement requiring employees to arbitrate class action claims individually. This means that f you’re an employer, even if you already have an arbitration agreement, it is time to have those agreements reviewed by your attorney as well.

Learn more about contracts

Learn more about litigation.

If you have questions about an arbitration agreement, feel free to contact me or call (949) 529-0007.

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In: California Civil Litigation, Contracts

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