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The Effect of Arbitration Clauses in Contracts

May 1, 2018

I have seen many, many contracts, especially in the entertainment industry, where clients will hire talent as independent contractors, that require arbitrating in the event of a dispute. The talent can be crew for a film, actors, or voice over artists for any variety of projects.

What is an arbitration clause? It looks something like this: "ARBITRATION: Any controversy or claim arising out of this agreement or any breach thereof shall be settled by arbitration in accordance with the rules of the American Arbitration Association."

This at first blush looks great to many people. "If any dispute arises, we won't have to hire a lawyer, or go to Court" is what people first say. However, what if you aren't paid under your contract? And suppose your contract is under $5,000.00, like many of these contracts are? What is the ramification of this clause?

Well, the American Arbitration Association published its amended and updated rates effective today, May 1, 2018. Here they are:

What it means is that to file for Arbitration will cost you $925, and it will cost an additional $800 to have a hearing. $1,725.00 just for filing fees. That puts a big dent in the amount you are due. Contrast this to filing a small claim in Connecticut Court for $95 for any dispute under $5,000.00. Many small claims courts do not require attorneys.

So, for many contracts, I would think long and hard before agreeing to an arbitration clause. In fact, paying a couple of hundred dollars to an attorney to review the contract before you sign it would probably be well worth the investment.