Should a Contract Contain Alternative Dispute Resolution (ADR) Clause?
Many people may not know what a contract is, let alone whether or not it should have an Alternative Dispute Resolution (ADR) clause. In this post, we will explore the difference between ADR and litigation, as well as why you might want to include such a clause in your contract.
The art of negotiating contracts and agreements is something that every business owner has to learn. There’s always a risk of disagreements, breaches in contract or agreement terms, and lawsuits on the horizon; but when these issues arise it can be costly for all parties involved.
What is the Alternative Dispute Resolution (ADR) Clause?
If you are in the process of creating an agreement, it is important to include a clause that addresses how disputes between you and your partner will be handled. If this is not included in your contract, then the default law for where you live will apply. This is why our team here at Raich Law PLLC highly recommends getting a business lawyer to assist you when drafting any type of business agreement.
If you’re looking to resolve your disputes in a more amicable way, this standard clause will be perfect for that. It includes an alternative dispute resolution (ADR) period of negotiation and then mediation before submitting the dispute to litigation or arbitration. This type of clause is sometimes referred to as an escalation clause due to its requirement that all parties agree on ADR methods prior to initiating any formal legal system proceedings.
ADR vs Litigation
Litigation and ADR are often paired in law school. Litigation refers to the process of preparing a case for court. Alternative dispute resolution (ADR) includes mediation and arbitration, processes which can take place either independently or during the course of litigation within courts.
Litigation has been the traditional method of resolving conflicts for centuries, while mediation is a relatively recent invention. Mediation differs from litigation in that parties are free to pursue other avenues if they remain dissatisfied with their agreement. In contrast, decisions made during trial can be binding and difficult or impossible to overturn later on down the line.
Do My Contracts Need an ADR Clause?
When deciding whether or not to include a contractual provision mandating ADR in the event of any future dispute, careful consideration and exploration is necessary. If you want disputes resolved before resorting to litigation on one hand then including mediation as an option would make sense with some reasonable time parameters specified.
If you’ve ever had to implement an ADR clause then you may or may not have had issues when the situation presented itself – it is important that all parties are aware and acknowledge this part of your agreement. This element must be clearly stated in order for a court to enforce any settlement made under such terms.
Have you ever had to implement an ADR clause in your contracts? Did it cause issues when the situation presented itself? If so, then consult with a Nevada contract attorney before finalizing your agreements. They can help make sure that all of those elements are there for enforceable clauses.