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Is it wise to include an arbitration clause in your business contracts?

| Apr 15, 2021 | Business Law |

As a small business owner, one thing you will come across is needing to use contracts. You may need to have a contract to work with a new employee or a contractor, for example.

When you create a contract, it’s important to discuss what you want it to do for you with your attorney. Do you want your contract to make sure someone won’t compete with your services if they leave your company? Do you want to avoid lawsuits?

If you want to avoid lawsuits from third-party vendors or employees, one option that you may have is to use an arbitration clause.

Is it smart to include an arbitration clause in all of your contracts?

It’s not a bad idea. Having an arbitration clause makes it so that most problems must first go through arbitration before any other steps are taken. The goal of this is to prevent lawsuits and to make sure that the two parties have an opportunity to work through the issue that has come up without getting the groups involved.

You may find that some companies don’t include arbitration clauses in their contracts. This may be negotiated between them and the other vendors or organizations they work with, or they may believe that there isn’t a high risk of litigation. For most people, it’s safer to include the arbitration clause, because having it could prevent litigation that results from many different types of issues.

What should you include in a new arbitration clause?

Your arbitration clause should include as many potential disputes or claims as possible to protect you. Include open-ended terms, like “disputes related to” to make sure that any potential claims end up being covered by your arbitration clause.

Your attorney can help you understand the benefits of arbitration clauses and why it’s a smart choice for you to get used to using them with your business. These clauses are very common in business, and most vendors or companies that you want to work with will be used to seeing them and may have their own in their personal contracts with others as well.