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What to Know About Arbitration Clauses.

Posted on 3/5/2014 by in contracts arbitration terms

Arbitration clauses are everywhere, this article aims to help one gain a better understanding of their legal effect, enforceability, benefits, and detriments under Florida law.

 

Arbitration is a form of alternative dispute resolution that is binding upon the parties. Unlike mediation, those subject to arbitration by an agreement, submit their cases for final resolution by an arbitrator. An arbitrator’s award is substituted for the judgment of a court, thus an arbitration clause essentially functions as a waiver of jury trial. 

The enforceability of an arbitration clause can be a matter of both federal and state law. The Federal Arbitration Act applies to any contract that has an effect on interstate commerce (a particularly broad standard) or deals with admiralty.  The Florida Arbitration Code applies to all other contracts governed under Florida law, which also happens to have some common law arbitration precedents. Although the technical procedure under the federal and state law is different, and the Florida specific statute is seemingly more lenient, generally, there is little one can do to evade arbitration and keep a case in court where one has signed an arbitration agreement and is compelled to arbitrate.   

The arbitration process is usually started by the filing of a lawsuit based on a breach of contract, and opposing party filing a motion to compel arbitration. The contractual agreement to arbitrate effectively removes the court’s jurisdiction to decide the case.  The right to arbitrate can be waived by participation in the court proceeding without moving to compel but both parties can agree to arbitrate after a waiver. Additionally, parties can just take their disputes directly to arbitration, although this is a far less common occurrence as the suing party usually believes they will benefit from a jury determination of facts and damages.  

Depending on the depth of the arbitration clause, all issues arising from or related to the contract can be subject to arbitration including whether or not an issue should be subject to arbitration.  Although arbitration clauses are personal in nature and typically binding only among the signing parties, there are plenty of circumstances where non-signing parties can compel arbitration and be compelled to arbitrate. 

As discussed, there is no jury in arbitration, the matter is decided by a single arbitrator or a panel of arbitrators depending on the procedures chosen or law applied. That alone could be a benefit for a party on the wrong end of a dispute as juries are more likely to play on emotion and arbitrators, generally, have industry related experience. Arbitration can also be more cost and time efficient. Most importantly to some, arbitration can be confidential. To a plaintiff, however, the lack of jury to hand out a large award can outweigh all of these benefits. 

There exists enough case law to write a book on each and every point made in this article. In this brief article, I hope to have conveyed the import of arbitration clauses because practically every time you sign one, it will be enforceable and can function as a waiver to a jury trial as an avenue for resolving a dispute.