Arbitration clauses in a contract can force a customer dispute into a private forum for permanent resolution, rather than using the court system to resolve it. Arbitration can avoid the risk of runaway jury awards. That also means that a large number of lawyers, who might take a case hoping to get a jackpot jury award, are often hesitant to accept an arbitration case. Benefits depend in large part on how the arbitration clause is drafted. At a bare minimum, an arbitration clause should address the following:

Location. Indicate where arbitration will take place. For the clause to be considered “fair,” we suggest it take place in the county or city where the customer lives.

Forum. List the group that will handle the arbitration, such as the American Arbitration Association or the National Arbitration Forum, and provide a phone number or Web site.

Fees. Make sure you explain which party will pay the arbitrator, case, and other fees, or how they will be shared. Also, state whether the winning party can recover their attorney fees.

Number of arbitrators. Determine how many arbitrators will be needed. Each one is paid for his or her time, so this can get expensive. We prefer using one arbitrator.

Finality and confidentiality. Indicate that the arbitration will be “final” and “binding” on the parties and that it will be kept private and confidential. This can help to avoid publicity and “copy-cat” complaints by other customers.

California and other states have begun to prohibit or restrict the use of arbitration in consumer contracts. The Maryland Home Improvement Commission, for example, requires arbitration clauses to be on the front of the contract and separately signed by the consumer. New York and Washington, D.C., also have little-known statutes that prohibit the use of an arbitration clause in a home improvement or remodeling contract. Of course, arbitration clauses can often be enforced if they are not contested by the consumer or the consumer's attorney. And, if the arbitration clause is thrown out, you will only find yourself back in court — where you would have been anyway without the arbitration clause. —D.S. Berenson is the Washington, D.C., managing partner of Johanson Berenson LLP (, a national law firm specializing in the representation of contractors and the home improvement industry.

This article is for informational purposes only and should not be construed as legal advice.