Small Business Arbitration Part I: Should we Make Arbitration Part of the Deal?
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Small businesses (including sole proprietors) frequently must negotiate arms-length commercial transactions with their more economically powerful counterparts and, not infrequently, must decide whether to accept an offer to make an arbitration agreement part of the deal. Whether or not to accept that invitation, and, if so, under what terms, may seem like a straightforward question susceptible to an easy answer, and it can be tempting to think that the risks associated with making the wrong choice are minimal, even in the event that a dispute arises and a party demands arbitration.
Yet any businessperson who has found herself at the wrong end of an out-of-whack-but-unlikely-to-be-vacated arbitration award will surely question the validity of that assumption, irrespective of whether she relied upon it when she agreed to arbitrate. Arbitration can offer some significant benefits, but to achieve them one must accept some significant risks. Whether or not to agree to it in the context of any particular deal is a decision requiring meaningful due diligence tailored to address the specifics of the contemplated transaction that may give rise to a dispute subject to arbitration.
Even if a businessperson were to do some basic research before agreeing to arbitrate, one could hardly blame her for concluding that arbitration is, for the most part, an excellent method of dispute resolution, particularly for B-2-B commercial disputes. Our hypothetical businessperson might sample some of the judicial opinions and trade and academic commentary on the subject, where she would readily find a virtually endless supply of praise for arbitration in general. That praise may be warranted in a general, aspirational sense – that is, what potential benefits arbitration is capable of delivering – but all too often it tends to understate arbitration’s risks or simply ignores them in whole or part. How could we blame our hypothetical businessperson from concluding that agreeing to arbitration will likely serve the interests of her business?
Read original articleTags: arbitration agreement, Arbitration Award, businessperson
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