THE BLOG
06/04/2014 04:38 pm ET Updated Aug 02, 2014

Your Contract Might Be Useless Without an Arbitration Clause

You are vulnerable without an arbitration clause in your contracts and it could prove to be devastating. Contracts are relatively useless if you cannot enforce them without too much hassle; enforcing them through litigation may be too costly and time-consuming to be practical.

An "arbitration clause" is simply a provision in a contract that requires the parties to resolve disputes through private arbitration rather than litigating them in court. These clauses have become very popular of late since we live in a litigious society where often a breach of contract leads to one of the parties filing a lawsuit. Most people do not realize how costly and time-consuming it typically is to use the courts to enforce contracts.

Large companies like Verizon and AT&T that have lots of experience with litigation are painfully aware of the costs. That is why many now have arbitration clauses in their legal agreements. Look at the agreement you signed with your cellular provider or your internet service provider and you are likely to find an arbitration clause. You also might find one in your employment contract.

Suing someone in court seems like the obvious thing to do to force someone to fulfill their contract obligations. But if they have a lot more money to spend on high-priced attorneys and delay tactics, they are going to have you tied-up in hearings and motions and pre-trial discovery for so many months or possibly years that you will go broke before you ever get the chance to present your case.

Arbitration is usually a lot less expensive and a lot quicker than going to court - especially when you use an online arbitration service like eQuibbly. An arbitrator has more flexibility to move the process forward and thwart any attempts by one party to drain the other party of their resources. You can read about some of the other benefits in the article, "The Benefits of Arbitration".

Where no arbitration clause exists, contracting parties can still agree to arbitrate a dispute after the fact. Even after litigation has commenced, a judge will usually agree to place a lawsuit on hold to allow the parties to resolve it by way of arbitration. But, these situations call for both parties to agree to arbitration at a time when it is less likely they will agree to anything. Where an arbitration clause exists in a contract, one party can compel the other party to arbitrate, and where the party refuses to participate, an arbitrator can make a binding and enforceable decision in their absence.

To avoid the costs and inconvenience of litigation, be prepared and insert the following clause into all of your contracts:

"Any controversy or claim arising out of or relating to this contract, or the breach thereof, shall be settled by final and binding arbitration administered by eQuibbly online under its Arbitration Rules, and judgment on the award rendered by the arbitrator(s) may be entered in any court having jurisdiction thereof for enforcement purposes. "