For Maryland business owners, especially in today’s highly litigious environment, they have likely heard of or thought of mandatory arbitration clauses. And, they may have thought, are mandatory arbitration clauses legal here? Yes. Under the Maryland Uniform Arbitration Act, mandatory arbitration clauses are legal and widely used in business contracts throughout the state. These provisions allow parties to settle disputes outside of traditional courtrooms through a private arbitration process. Many businesses include them to manage risk, control costs and resolve disputes more efficiently.
Are these clauses enforceable?
In general, Maryland courts uphold arbitration clauses, as long as they meet certain standards. The MUAA requires that agreements to arbitrate be in writing and reflect mutual consent. Courts will not enforce these clauses if they find evidence of fraud, coercion or unfair advantage. For example, if one party had no meaningful choice or did not understand the clause, a court may rule it unenforceable.
Making an arbitration clause stick
If you are considering adding arbitration to a contract, clarity is key. The clause should clearly state that disputes must be resolved through arbitration. It must also name the rules or body that will govern the process (like the American Arbitration Association or another arbitration corporation or body). The clause must specify how the arbitrator will be selected. Usually, it is by mutual consent.
Be sure to avoid legal jargon that might confuse non-lawyers, and apply the same terms to both parties to avoid the appearance of bias. Always be transparent and fair because that improves your odds that a court will enforce the agreement if it is ever challenged.
Why use arbitration?
There are several good reasons to include arbitration clauses in business contracts. The most often reason is that arbitration is faster and cheaper than litigation. Though, it is also private, which can help keep trade secrets or sensitive info confidential. Arbitration also offers more flexibility, which allows parties to tailor the process. It reduces pressure on the court system, benefiting both public and private interests. In the end, arbitration clauses give businesses a degree of control and predictability that court battles often lack.