Save Time and Money: Place ADR Clauses in Your Agreements

Almost anyone who has been involved in litigation will urge you to avoid it at all costs. One surefire way to do so is to include alternative dispute resolution (ADR) clauses in the legal agreements you enter into. Doing so is simple. Just locate the language that suits you and have it placed in the agreement.

How can you go about deciding what language is right for you? Reading this article is a good first step. Then read the other ADR articles in this issue. Of course, consult your lawyer as well.

Mediation and arbitration clauses have become popular in legal agreements. For example, parties entering into an agreement – whether to lease property, contract for services or enter into a partnership – agree (in writing) that if a dispute arises, a certain resolution protocol will be followed. The clause may be “soft,” such as stipulating that the parties will attempt to resolve the dispute by mediation (out of court), or the clause may be “hard,” stipulating that the parties will use mediation and then, if a settlement is not reached, binding arbitration. Typically, the language will stipulate how a particular mediator or arbitrator will be selected, how costs will be shared, and which “tribunal” will be used.

ADR Administrators (Tribunals)

Many ADR “tribunals” promulgate rules for mediation and arbitration and provide administrative support for the same. A few of the more prominent are the International Centre for Settlement of Investment Disputes (ICSID), the International Chamber of Commerce (ICC), the American Arbitration Association (AAA) and the London Court of International Arbitration (LCIA).

Making Your ADR Clause Clear and Binding

If you go to the trouble of crafting an arbitration clause and incorporating it into your agreements, you want it to be binding and enforceable on the parties. It needs to be able to withstand legal challenge. This can be achieved only when the clause is written and used correctly. Here are guidelines your ADR clauses should conform to or risk being thrown out by the courts:

• Knowledge and Agreement: Make sure that any party you wish to be bound reads, understands and has the option to accept or decline your offers, goods or services that require agreement to the arbitration clause.
• Giving Value: At the time of agreement, provide the party something of value for accepting your terms, such as goods, services or promises.
• Neutrality: Make sure that the clause is fair to both parties in time, cost and win-lose prospects.
• Equally Binding: Don’t try to require the opposing party to use ADR while you retain the right to sue.

State and federal courts have consistently upheld arbitration agreements that are fair, not discriminatory and agreed to by adults of sound mind. For example, the Supreme Court ruled in Circuit City Inc. v. Adams, May 2001, that employers may bind employees to an ADR agreement as long as it is fair and equitable.

Consumer Goods and Services, Opt-Out Provisions

With the proliferation of Internet sales, companies struggle with consumer demand for speed and the company’s desire to stipulate the terms a sale is made under – such as with an agreement that disputes will be resolved by ADR. To address this issue, companies try to enforce such agreements through “I accept the terms” buttons on their websites, and “opt out” clauses inserted into the terms of agreements included in packaging. The former requires consumers, before purchase, to confirm that they have read and accepted the terms of sale (which might include an ADR agreement). The latter allows customers time to “opt out” of the ADR clause (or return the product for a refund) if they do not wish to accept the goods with the ADR clause. Visit with your attorney before implementing one of these strategies, but it appears that courts uphold the validity of such agreements when they are fairly and properly written.