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It is common practice for major wireless carriers to include an arbitration clause in their standard agreements for enterprise customers.  Unlike the consumer context, there has never been a question about the legality of such clauses. However, the efficacy, and scope of arbitration as the agreed upon procedure for dispute resolution , should always be reviewed in the context of the deal being made.

The first question is whether to agree to an arbitration clause at all; a process of weighing the pluses and minuses.  According to the American Arbitration Association, probably the leading organization in the United States providing arbitration services:  “Arbitration is a time-tested, cost-effective alternative to litigation. Arbitration is the submission of a dispute to one or more impartial persons for a final and binding decision, known as an ‘award.’ Awards are made in writing and are generally final and binding on the parties in the case.”  However, cost-effective does not mean cheap.  First, discovery in an arbitration can be almost as extensive as in court litigation and therefore, as expensive.  The scope of discovery is up to the parties and the arbitrator so one does not know up front how extensive it might be.  Second, the expense of litigation can, at times, induce parties to resolve a conflict they otherwise might.  Thus, one needs to consider whether making litigation type resolution less expensive might, in fact, lead to, more, rather than less, conflict.

Second, arbitration is not necessarily fast.  AAA arbitration can take a year or more depending on the complexity of the case and the actions of the parties.  Again, the possibility of delay can, at times, induce a resolution that might not otherwise come if the matter can be “litigated” quickly.

On the other hand, one undisputed and major benefit of arbitration is confidentiality.  The fact of arbitration, as well as all of the information related to the specific case, can be kept confidential.  In contrast, the fact of litigation as well as court filings and ultimately the facts developed at trial are generally available to the public.  On the other hand, one undisputed disadvantage of arbitration is the loss of appellate review.  Decisions of an arbitrator are not reviewable except in very limited circumstances.  Thus, any mistake or error that an arbitrator may commit generally cannot be reversed.

How one weighs these plus and minuses depends on the nature of the contract being negotiated, the personalities of the parties involved and, ultimately, what is at stake if a breach of the contract occurs.

We will deal with additional issues related to arbitration clauses in future posts.