Last week we talked about why you might want a dispute resolution policy in your contract. This week, let’s talk about how to get that dispute resolution policy into your contract.
First off, let’s talk about how this works. The law is designed to describe how certain parties relate to each other. The law, of course, does not describe everything that may happen, but it covers a fair amount. When it comes to resolving disputes, the law is dictates certain terms for how disputes will be handled in court. Contracts, are a legal way to modify what the law says. So, if you want something different than the way the legislators have decided something will be, you need to include that in your contracts. Dispute resolution is no different. Of course, in most cases, the law also controls how you can modify the law with your contracts (or if you can modify it at all).
For our purposes today, we will talk about some of the finer points of a dispute resolution policy.
Exclude Collection of Undisputed Fees
To begin, you do not want to include collections in any type of dispute resolution policy. You may go through the policy if you believe there is a dispute over how much money you are owed, but you do not want to be stuck mediating and arbitrating an undisputed unpaid invoice. That will slow down your collections process and will not help you. You want the threat of litigation over undisputed fees to be real and immediate.
Decide if Litigation is an Option
There is a difference between binding and nonbinding arbitration. One means that the parties to the contract are waiving the right to court intervention. The other means that arbitration is only part of the process, but the decision may still be appealed to the court.
Decide if you want a judge or a jury
Like we discussed last week, some issues are complex and need to be determined by those with specialized knowledge. The same may also be true for issues you want to be left to litigation, but you do not want to enter the crap shoot of the jury pool. You can simply indicate that any dispute will be resolved by a bench trial (a trial without a jury). Of course, a lot goes into this decision.
Decide how much you want to dictate
Dispute resolution policies can be simple or complicated. You can outline the entire resolution process in your contract or you can loosely outline what should happen. Everything from “the parties agree to submit every dispute arising under this agreement to mediation and, if necessary, binding arbitration” to a multi-page discourse on how mediators and arbitrators are selected and what rules will be used and how documents will be exchanged is fair game. Of course, like with so many other aspects of contract drafting, you need to consider what language will be signed the first time when you are making your decisions of what to include in your contract.
So, there you have it. Some of the decision process for what appears to be a simple paragraph in a contract. Does a dispute resolution policy make sense for your business? Do you have one in your contracts? Does it do what you want it to do?
Pull out your contract and look at that dispute resolution policy. If nothing else, make sure collections is not included in your dispute resolution policy.
I will talk to you next week, unless you talk to me first 😉