There are many different provisions that go into a contract. Some of these provisions are standard, some are unique to each circumstance, and some are a mix between those two. However, every contract should have provisions that address how disputes between the parties will be handled. This may include provisions that dictate choice of law that will be applied to disputes (i.e., Texas law instead of Idaho law), choice of forum for disputes (i.e., Bexar County instead of Travis County), or what type of dispute resolution to which the parties agree.
There are three main types of provisions in this realm: (1) provisions requiring mediation of disputes, (2) provisions requiring arbitration of disputes, and (3) provisions waiving the right to a jury trial.
- Mediation is a voluntary and informal process in which a neutral third party, the mediator, assists the parties in reaching a mutually acceptable resolution to their dispute.
- Arbitration is a method of resolving disputes outside of the court system, where an impartial third party, known as an arbitrator or a panel of arbitrators, is chosen by the parties to hear the case and make a binding decision.
- A jury trial waiver waives the right to a jury trial and instead agrees that disputes will be resolved either through alternative dispute resolution, like mediation or arbitration, or through litigation with the judge hearing the case and making the final decision as the finder of fact instead of a jury.
| Mediation Clauses | Arbitration Clauses | Jury Trial Waivers | |
| Benefits | Voluntary and collaborative process. Preserves the relationship between the parties. Cost-effective. Confidentiality. Flexibility and informality. Control over the outcome. Speedy resolution. Creative solutions. Preserves business reputation. | Faster and more efficient than litigation. Cost-effective – sometimes. Expertise of arbitrators. Confidentiality. Flexibility and informality. Final and binding decision. Neutrality and impartiality. | Cost control. Expediency. Expertise of judge. Privacy and confidentiality. Control over process. Avoiding jury bias. Predictability and consistency. |
| Drawbacks | Potential delays. Limited discovery and evidence gathering. Possibility of impasse Restricted appeal options. Not binding. Not guaranteed to result in a resolution. Doesn’t make sense for all situations. | Limited judicial review. Cost and complexity. Limited discovery. Limited remedies. Potential for rushed decisions. Non-binding nature. Increased costs if complex dispute. | Limited jury expertise. Reduced emotional appeal. Difficulty in appealing decisions. Judicial bias. |
There is no right answer as to whether you should include a specific type of dispute resolution process in your contract. Consideration must be given to the complexity of the issues surrounding the contract and the potential issues that may develop in relation to the contract. Working with an attorney to determine which provision if any should be included in your contract will assure that you understand the practical implications of including such a provision. If you’re a small business owner and are going through a dispute, contact us today to get guidance.
