Why do small businesses put arbitration clauses in their contracts?
My usual complaint with arbitration clauses is when they are forced upon consumers or small businesses by the big businesses. As I wrote previously, I think arbitrators favor their repeat customers, namely the big businesses. A trial court is a much more level playing field for the small business or consumer taking on Golliath. But recently I've started to see small businesses actually write arbitration clauses into their own contracts.
This creates a problem when the client comes to me because their customer won't pay their bill. There's no dispute, they're just not paying their bills, probably because of the economy.
This is a discouraging discovery. Now instead of just walking a few blocks to the court house to file suit to collect the debt and then probably taking a default judgment or getting a summary judgment in a short time against the deadbeats, we face the problem of having to go to the extra expense of opening an arbitration claim. Or if we file suit, we run the risk that they'll actually respond to the lawsuit by demanding arbitration, pursuant to the contact. If they do that, our court filing fee is down the drain and now we have to pay again for the arbitration fees.
Arbitration. Not faster, not cheaper. Not necessarily. Especially if all you are doing is trying to collect a debt. Getting a default judgment is cheaper and easier than trying to do the same in arbitration. Plus, even after you get your arbitration award, you're still not done. To collect, you then have to file (and pay for) an action with the court to confirm the arbitration award. What a bunch of hassle just to collect an undisputed debt.
A small business that likes arbitration would be wise to at least exempt their own collections claims from their own mandatory arbitration provisions in their own contracts.
