When A Not-So-Basic Arbitration Provision Makes Sense

We’ve always tried to cover key aspects of arbitrations on this blog, and why arbitration may make more sense for your situation, as opposed to having to pursue a public lawsuit in court. But when you need fast, injunctive relief, a prior agreement to arbitrate can potentially cause delay and be problematic.

Though a major upside of arbitration is that it is often a faster process overall, arbitration can be much slower than litigation to get started. If you want to file a lawsuit in state or federal court, you draft a complaint and file. In arbitration, you must prepare a demand, appoint an arbitrator or multiple arbitrators, and agree to rules. This can take several weeks.

When This Can Be Problematic

Sometimes this can pose problems. Many contentious disputes involve requests for “injunctive relief” – this means a party is not (only) asking for money damages, but also an order from the court that restrains a party from doing certain acts.

A classic example is if a company is suing one of its ex-employees for spreading its trade secrets to the public. In that case, you need fast relief – something like a temporary restraining order, or a preliminary injunction, or a permanent injunction. A court has inherent authority to order that ex-employee to stop disseminating trade secret information. Not only that, but the court’s authority also is backed by government authority to enforce that order or injunction (as well as having the power to issue sanctions or cite parties for contempt if they don’t obey). Arrbitrators don’t have this same inherent authority.

A Carve-Out for Injunctive Relief Claims Makes Sense

So, if you intend to include a binding arbitration clause in your business contracts, consider including an exception or carve-out for injunctive relief claims. The goal will be to allow the parties to seek injunctive relief through the courts but resolve all other claims through arbitration.

It’s important to have a skilled contract lawyer draft this clause, because the specific language matters. The language needs to make clear that arbitration is not the exclusive remedy in these situations. But, the language also needs to make clear that including a request for injunctive relief does not keep the entire dispute out of arbitration. Note also that the courts in some countries (particularly China) sometimes these carve outs as an excuse not to hear the case at all.0