As a business owner, you likely sign or send out contracts on a regular basis many of which include “standard” arbitration clauses buried at the end and rarely questioned. But as more companies find themselves navigating costly and time-consuming arbitration proceedings, it’s become clear that these boilerplate provisions can have real financial and strategic consequences. This article is designed to help business owners understand why arbitration may not always deliver the efficiency it promises, what alternatives exist, and how a more deliberate approach to dispute resolution clauses can better protect your company’s time, money, and flexibility.
In practice, arbitration administered by the American Arbitration Association (“AAA”) can now feel a lot like court litigation, only more expensive. Filing fees can reach five figures before a single hearing is held. Discovery can expand beyond what was once “streamlined,” with document production, depositions, and motion practice resembling full-blown litigation. The scheduling process, arbitrator availability, and procedural steps often stretch timelines well past what clients expect from “private dispute resolution.”
That’s not to say arbitration is without merit. It still offers privacy, the potential for subject-matter expertise from the arbitrator, and (in some cases) finality without appeal. But it’s no longer a given that AAA arbitration is the right fit for every contract or every dispute.
Other reputable national providers, including JAMS and NAM, often offer more flexible rules, faster administration, or lower filing fees. Some allow parties to agree on modified procedures or streamlined timelines. And in some cases, the best course of action may be to forego arbitration entirely and preserve access to the courts, especially where injunctive relief, third-party discovery, or appellate rights may be critical.
The broader lesson for business owners is that dispute resolution provisions require deliberate attention at the drafting stage, not merely insertions by default. Consider the types of disputes that could arise, the potential costs, and the benefits of flexibility. You might want a very formal arbitration, or a more streamlined arbitration option. You might want to preserve the right to go to court while protecting venue, governing law, and jurisdiction. Mandatory mediation followed by arbitration or litigation can also be an effective approach for certain claims.
Contracts are a tool to manage risk, yet one of the greatest risks in commercial disputes today is being locked into an inefficient or costly forum simply because “that’s what everyone uses.” As dispute resolution evolves, so should our approach to arbitration clauses. Thinking strategically about arbitration and litigation at the outset can save time, money, and stress down the road. It can give you greater control when disputes inevitably arise. Choosing the right approach depends on your business, your deals, and the types of disputes you may face. Investing in careful contract language now protects both your business and your bottom line in the long run. This type of critical analysis is no longer optional – it’s a competitive advantage.
For more input and guidance, reach out to David Green at 631-738-9100.