In recent years, many businesses have started to include mandatory arbitration provisions in contracts with suppliers, customers, and consumers. While mandatory arbitration provisions may be advantageous in certain transactions, their benefits must be analyzed on a case by case basis.

Arbitration is a private dispute resolution process in which a neutral third party renders a decision resolving the dispute after both parties have had an opportunity to be heard. Mandatory arbitration provisions, which are usually included within the terms of a written agreement, require the parties to resolve any dispute related to that transaction through this process, as opposed to presenting the matter to the courts. Overall, this process has been viewed as less costly and more efficient than traditional litigation. However, there are many situations where this presupposition has proven false.

For example, mandatory arbitration provisions in consumer contracts or in contracts between an employer and an individual employee are coming under strict scrutiny by the courts, and in some cases, have been found to be unenforceable. In addition, even if an arbitration clause itself is not challenged, the arbitration decision may later be challenged in court. Obviously, these types of legal disputes will add to the cost of arbitration. Furthermore, when a private dispute resolution mechanism like arbitration is used, the parties typically pay the cost for the arbitrator痴 services, which may be substantial depending on the nature of the dispute. Therefore, prior to inserting mandatory arbitration provision in a contract, you should consider the nature of the contract (consumer or commercial), the amount involved, and the complexity of the potential issues to determine whether mandatory arbitration is the best way to resolve potential disputes.