What Are Arbitration Agreements?

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When going over partnership documents, there are many things to consider. Partnership documents are anything that define your working partnership with another party, including shareholder agreements and operating agreements. One section of these documents that can be skimmed over without thinking is the arbitration agreement. However, this section is vitally important.

Arbitration is a process where a third party resolves a dispute outside of court. As opposed to mediation, the third party does make a definitive ruling on which side has won the dispute and what should come next. These arbitrators are frequently retired Judges or other individuals with an extensive working knowledge of the law. Arbitration is popular among companies because it is faster, potentially less expensive, and far more private than taking disputes to court.

Two Types Of Arbitration Agreements

Arbitration agreements dictate that any dispute between the partners in question will be handled out of court and through arbitration. There are two types of arbitration agreements:

  • Binding agreements mean that both parties will follow whatever the arbitrator decides. In this case, the arbitrator’s ruling becomes legal and enforceable, just like that of a Judge.
  • Non-binding agreements mean that all disputes will be handled first through arbitration. If either side is unsatisfied by the result, they can then take the dispute to court as though the arbitration never happened.

The most common arbitrary agreements in partnership documents are binding. They are also mandatory and not up for negotiation, unlike most of the document. It is important to always be aware of whether or not your partnership documents have arbitration agreements and what they state.

Advantages Of Arbitration

The advantages of arbitration do not only benefit one side. It is a faster process than a court hearing, and sometimes less expensive for all involved. It can avoid the hostility found in a full-blown court proceeding. You can also request arbitrators familiar with your line of work, which can be helpful for understanding the nuances of technical work, for example.

The disadvantages of arbitration include not being able to appeal a decision, an essential part of our American justice system. Arbitrators can also be less objective than Judges, sometimes favoring a large corporation over an individual victim. The privacy of arbitration can be a double-edged sword, as sometimes not being able to discuss the outcome of your dispute is a loss for all parties involved.

Arbitration is a common practice, and arbitration agreements are commonplace. It is still important to note their place in any partnership documents you have, and to determine your attitude towards them. With any questions about contracts or business law, contact Trembly Law today. It is our goal to resolve your legal matter as quickly and painlessly as possible!

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