Will Mandatory Arbitration Clauses Benefit Your Business?

Law Blog

Businesses get sued every day for various reasons. You may have sold a defective product to the consumer or rendered services in a manner contrary to the user agreement. Companies stand to lose a lot of money when such lawsuits are ruled in favour of the complainant. That's why they consider including mandatory arbitrary clauses in their contracts. This clause indicates that the aggrieved party has to agree to a sit down where the matter will be resolved by an arbitrator. It prevents them from going to court and suing your business.

This article will look at the benefits and drawbacks of including a mandatory arbitration clause in your business agreements.

You stand to save money

Court battles are costly for business. When your company gets sued for whatever reason, there is a high chance that you will incur a lot of expenses in the process. First, you need to find a good lawyer to defend your interests if you don't already have one. Second, if the aggrieved party wins the case, you will be required to pay for damages or any other form of compensation as prescribed by the court. However, arbitration is informal, and this allows you to save money and time that would be spent in court. Also, you get to negotiate on the compensation terms as compared to the court where the judge's ruling is final.

You save your company's image

Lawsuits can taint the image of a company and cause it to incur losses. For example, if a consumer sues for receiving a defective product, the matter may reach the public domain. This means that potential customers may be reluctant to do business with you just because one individual was unlucky to receive a bad product. Arbitrations are always handled privately, and this means that the matter may never reach the public ear. For this reason, you can preserve the image of your company and solve disputes without losing your clientele.

You may arouse suspicion in clients

One of the greatest drawbacks of a mandatory arbitration clause is that it tends to favour the company and not the client. That's because the customer cannot go to court and sue regardless of the weight of the situation. In most cases, these clauses are usually hidden in the contract. However, when a customer learns about it, they may develop feelings of suspicion. The fact that their right to sue is being taken away may make them reluctant to transact with the business. It is essential to think about your customers and their reactions before including the clause in your agreement.

Mandatory arbitration clauses can be beneficial to your business, but they can also cost you your clients. Consult a commercial law firm so that you can write up contracts that represent the interest of the company and its clients.


13 July 2018

Doing business with large companies

When you are a small company it can be a little scary to enter into business relationships with much larger companies. Larger companies have a lot more resources to protect themselves if there is a dispute. That's why it's important to have a smart lawyer on your side to help you draft the most watertight agreements possible. This blog has some tips that I have picked up over the years on how to make sure that you are legally protected when dealing with big companies, as well as some tips on how to choose a great business lawyer for your business.