Startups and Arbitration: Top 3 Legal Tips
The last thing you want dragging your startup down is long-term litigation. There are always legal risks to starting a business, but frivolous lawsuits and out-of-nowhere class action suits can scuttle your company before launch (or lunch, even).
One way many businesses -- large and small -- are attempting to avoid costly and damaging legal battles is through arbitration agreements, which funnel disputes to private dispute resolution rather than public courts. Here's a roundup of our small business arbitration coverage, to find out if arbitration agreements are right for your startup, and how and when you can use them.
Most startups and small businesses lack the deep pockets for prolonged litigation, and alternative dispute resolution can offer a less expensive way to settle contract and employment disagreements. Often, however, any arbitration requirement must be baked into the original agreement. So, you'll need to decide early whether you want to hash out certain fights in a courtroom or a conference room.
As noted above, arbitration can keep your legal disputes well outside the public eye. This can be critical to preserving a startup's reputation while you're still trying to create it, and preventing the collateral damage of P.R.-rehab to your company's bottom line. Arbitration agreements can also forestall any class action litigation, which can prove far more expensive than standard lawsuits. Not all arbitration clauses are enforceable, however, so be careful.
No, it's not the latest social media unicorn. It's an acronym devised by Eric Sherby as a way for startups (and their legal counsel) to craft enforceable arbitration agreements. Those need to be Broad, contain a choice of Law, Institution, and Number of arbiters, as well as an allocation of the arbitration Costs.
So, if you're considering mandatory arbitration as a way to resolve your startup's legal disputes, contact a local contract attorney today for help.
- Find Contracts Lawyers Near You (FindLaw's Lawyer Directory)
- Supreme Court Backs Employers in Arbitration Clause Cases (FindLaw's Free Enterprise)
- Top 3 Legal Red Flags in a Business Contract (FindLaw's Free Enterprise)
- When Should You Sue an Employee? (FindLaw's Free Enterprise)
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