Avoiding Contract Pitfalls – Part 2: Arbitration Clauses

Part 2 of our “Avoiding Contract Pitfalls” series addresses another provision that is often “buried” in contracts: the arbitration clause. Arbitration is an alternative dispute resolution procedure that occurs outside of court. Although it involves the presentation of evidence similar to a court proceeding, with arbitration, a private third party—not a judge—makes a binding decision based on the evidence presented. Legal disputes are arbitrated, instead of litigated in court, when the parties have signed a contract with an arbitration clause.

Arbitration usually will be better for one party and worse for the other party. Some downsides to arbitration often include no right to a jury, no right to an appeal, limitation of your right to “discover” evidence that the other party has, and substantial upfront costs. Where might you find an arbitration clause? In virtually any contract: a complex construction contract, the document you sign to get your kids inside a bounce house, and everything in between. These clauses usually are enforceable because federal law and Louisiana law both strongly favor enforcement of arbitration clauses. At the same time, sometimes a court will not enforce the clause if it’s not properly worded or not properly located within the contract. For example, in 2016, in Duhon v. Activelaf, LLC, No. 2016-0818 (La. 2016), the Louisiana Supreme Court examined an arbitration clause in a contract on a computer screen that a man signed for himself and three children before they would be allowed to enter an indoor trampoline park. In that particular case, the Supreme Court held that the arbitration clause was not valid, in part, because there was no check box adjacent to the arbitration clause.

If you sign a contract with an arbitration clause, will it be enforced against you? There is a good chance that, yes, the court will enforce it. Notably, in the trampoline park case, the Louisiana Supreme Court indicated that if the clause had been more visible, it would have been enforced against the injured man. Before signing an arbitration agreement, be prepared for the likelihood that it will be enforceable. If you find yourself in the situation of having someone attempt to enforce an arbitration agreement against you, consult a lawyer for advice on whether the agreement truly is enforceable.