The Four Keys of Small Business Contract Arbitration

small business contratct arbitration

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4.   Arbitration Clauses Need to be Drafted with Care

Arbitration provisions need to be drafted with care.

For instance, arbitration provisions that fail to provide that a state arbitration statute applies will result in the application of the Federal Arbitration Act, which could lead to different results.

Likewise, if an arbitration provision does not explicitly provide that the arbitrator has the authority to determine its own jurisdiction, claims challenging the enforceability of an arbitration clause can end up involving court proceedings to determine the scope of the arbitrator’s authority to determine that issue.

Arbitration clauses have also been found that fail to include the substantive law to be applied as well as the identity of the arbitration forum charged with adjudicating the dispute.  Such drafting failures can spawn a level of wasteful litigation that can make arbitrations inefficient as well as extremely expensive.

The Take Away.

  • Parties to an agreement should consider how disputes between or among them should be resolved;
  • Arbitration is a very common alternative to court room litigation, but, like with everything, it has positive and negative attributes;
  • When acceding to an arbitration clause, the parties should consider carefully how the provision is drafted to avoid unnecessary controversy over its application and the arbitrator’s scope of  authority.   

Related articles:

Contracts Part V: 7 Unique Features of Distribution Contracts

Supplier Contracts- What Small Business Owners Need to Know

Contracts Part III: The Role of Legalese in Contract Drafting

Contracts Part II: Laying the Groundwork

Small Business Contracts Part I: A Different Perspective

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About the author

Robert Goodman

Robert Ian Goodman, Esq. represents clients worldwide in the areas of complex commercial immigration and international and domestic commercial law. Mr. Goodman also provides general counsel services to entrepreneurs and start-up businesses and counsels foreign businesses interested in establishing a presence in the U.S. marketplace and U.S. businesses interested in expanding abroad. Mr. Goodman is principal of Goodman Immigration. He is also Special Counsel to the international boutique law firm, Sharma & DeYoung LLP ("S&D"), where he directs the firm's commercial immigration practice. He also co-chairs that firm's Technology and Emerging Companies Practice Group and is a member of S&D's Commercial Litigation and Arbitration Practice Group. 

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