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Helping You Navigate Complex Legal Issues

Small business owners and arbitration

Gregory A. Lang

Business owners deal with contracts every day, signing agreements with employees, vendors, customers and contractors. Many still assume that if a dispute arises about any provision, they will proceed to litigate the issue in court. However, if like many arrangements today, the contract specifies dispute resolution via arbitration, you may not end up having your day in court.

Whether arbitration presents an advantage or an obstacle can vary greatly depending on the circumstances and type of contract. Arbitration differs from litigation in several key aspects that can strongly affect the outcome of your case. In some cases, you may wish to include an arbitration clause in a contract. When another party presents you with a contract containing an arbitration requirement, always consult your attorney about potential ramifications before accepting.

Simplified process

In an arbitration proceeding, the parties work together to select an arbitrator according to established procedures. While arbitration has a process for obtaining and presenting evidence, this process is very limited compared to the comprehensive discovery process in litigation. On one hand, this streamlining can save time and money. On the other, it can reduce your access to potentially important information.


Unlike litigation, arbitration generally remains a private process. In many cases, the parties cannot even make public the details and outcome of the case after its conclusion. This is one reason why many employers choose to require arbitration of employment disputes: Arbitration can make it easier to avoid potentially damaging public discussion of employee complaints.


Both the Minnesota and the federal arbitration statutes limit the circumstances under which parties may appeal an arbitrator's decision. An arbitrator's powers during the process are usually defined by a combination of specific provisions in the agreement and incorporated arbitration rules. For example, an arbitrator may have no automatic power to sanction parties for misconduct; however, if the agreement incorporates rules providing this power, the arbitrator's sanctions could be valid.

Minnesota businesses are likely to face the prospect of arbitration in several contexts. In some situations, you may prefer arbitration; in others, litigating in court can prove more advantageous. As with other complex legal issues, consult an experienced business law attorney if you have concerns about an arbitration agreement.

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