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Are Arbitration Provisions in a Contract Enforceable?

Arbitration is a form of alternative dispute resolution. It is a way to resolve disputes outside of judiciary courts. Each party presents their side of the dispute, and an arbitrator will decide on the issue (like a judge does). Two of the main benefits of arbitration are speed and a less expensive process.  Arbitration is  also private, so the dispute is kept out of the public eye. For these reasons, many contracts include arbitration provisions that state disputes will be submitted to arbitration. Parties to a contract can agree to arbitration for the entirety of the contract, or for certain disputes that may arise out of the contract.

In most cases, an arbitration provision in a contract is enforceable. The right to bargain for an arbitration provision in a contract is protected by statute in Nebraska. Nebraska Revised Statute § 25-2602.01(b) says that if the provision is entered into voluntarily and willingly, a “provision in a written contract to submit to arbitration any controversy thereafter arising between the parties is valid, enforceable, and irrevocable.”

However, if the contract is a standardized contract and includes an arbitration provision as the sole remedy for dispute resolutions, the contract must include the following statement, capitalized and underlined, under the signature block: THIS CONTRACT CONTAINS AN ARBITRATION PROVISION WHICH MAY BE ENFORCED BY THE PARTIES.

Enforceability is also subject to a few statutory exceptions. Arbitration does not apply to workers compensation issues. Nor does it apply to a personal injury claim arising out of tort, a claim arising out of the Nebraska Fair Employment Practices Act, any agreement between parties covered by the Motor Vehicle Industry Regulation Act, and any agreement concerning or relating to an insurance policy other than a contract between insurance companies including a reinsurance contract.

Interestingly, if the enforceability of an arbitration clause is at question, a court will decide on the enforceability, not an arbitrator. A court will look at two things. First, the court will determine if a contract was formed to begin with. Second, the court will look at if the claim is covered by the arbitration provision. Nebraska Revised Statute §25-2602.01(b) also says that arbitration provisions may not be enforceable if the contract is revokable, “upon such grounds as exist at law or in equity for the revocation of any contract.” Grounds to revoke a contract include the existence of fraud or unconscionability, which are highly fact-based reasons for revocation.

Despite this, like other contractual rights if both parties agree they can waive the arbitration provision and attempt to resolve their dispute in other ways such as proceeding to court-based litigation. If you need help with contract disputes, contact the business attorneys at Berkshire & Burmeister to discuss your issues!

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