Should You Include Arbitration Clauses In Customer Contracts?

Arbitration clauses can save your company a lot of legal expenses down the line if you have a dispute with your customer. However, "forced arbitration" isn't exactly a friendly term–and many consumers are increasingly wary of such clauses in their service contracts. Here's what you should consider before you decide to require your customers to agree to arbitration as a condition of doing business with you.

Why do customers dislike arbitration clauses?

In theory, arbitration can save everyone involved in a dispute both time and money. Arbitration is designed to put all the parties together and try to come to a solution that's at least somewhat acceptable for everyone. However, customers often don't like their options to be limited–they want to know that they have the recourse of a lawsuit if they're mistreated by a company. Arbitration clauses, especially if they're binding, take away the individual's right to seek out a verdict from a jury of their peers or appeal an unfair decision. In addition, most arbitration clauses favor the business from the outset. The business usually sets the rules for where and how the arbitration proceeds and often prevents consumers who've been similarly wronged from participating in class action lawsuits. 

Consumer advocacy groups point out that businesses seldom agree to forced arbitration clauses in their contracts with other businesses, which only furthers the impression that arbitration clauses are a weapon that businesses use against consumers. 

Given that information, it's easy to see why trying to push an arbitration clause on your customers could cause you to lose some of those customers. If they have the option to do business elsewhere, you could find yourself losing out to competitors who are willing to forgo arbitration.

How can you use one without angering your customers?

If you want to use arbitration clauses in your customer contracts, consider an approach that will stress your intentions to play fair in any dispute. The more clearly that you establish a willingness to address your customer's concerns, the more likely that they'll see the clause as an attempt to get a resolution without engaging in a huge legal battle instead of an attempt to keep from living up to your end of the bargain. 

One strategy is to give your customers the right to "opt out" of any arbitration clause. Consumer advocacy groups are generally supportive of voluntary arbitration. However, if you're not keen on that idea, you can take other measures:

  • Allow your customers to have a say in who leads the arbitration if they desire. That removes the appearance that any arbitrator chosen is automatically going to be biased toward the business.
  • Don't make the arbitrator's decision absolutely binding. If customers know that they can ultimately appeal an unfavorable decision, they may simply see arbitration as one step in the dispute process, instead of an attempt to circumvent their legal rights.
  • Don't include a non-disclosure clause. That way there's no appearance that your company is trying to hide something from public knowledge.

An arbitration clause doesn't have to create hard feelings between you and your customers. By making sure that your customer feels like he or she still has some power over the process, you can still use arbitration clauses in your contracts without souring your customers on your business. For more information on how to include arbitration clauses in your contracts, contact an attorney like those at Abom & Kutulakis LLP.