Arbitration Clause in Non Disclosure Agreement: Everything You Need to Know
An arbitration clause is a common addition to non disclosure agreements (NDAs) between organizations and individuals. These clauses dictate how disputes between parties will be resolved, often outside of the courtroom. But what does an arbitration clause entail, and how does it affect the use and enforcement of an NDA?
In this article, we`ll discuss the benefits and drawbacks of adding an arbitration clause to an NDA, as well as provide guidance on how to draft such a clause.
Why Add an Arbitration Clause to an NDA?
There are several reasons why parties might choose to include an arbitration clause in an NDA:
1. Speedier Resolution: Court cases can drag on for months or years, while arbitration hearings typically last only a few days. This can save both parties time and money.
2. More Control: In an arbitration, the parties have more say in how the dispute is resolved. They can choose the arbitrator, determine the rules of evidence and procedure, and more.
3. Confidentiality: Arbitration proceedings are typically private, meaning that sensitive information can be kept confidential. This is especially important in NDAs, where companies may be trying to protect valuable trade secrets.
Drawbacks of an Arbitration Clause
While there are benefits to including an arbitration clause in an NDA, there are also several drawbacks:
1. Limited Review: Unlike court proceedings, arbitration hearings do not provide for formal appeals processes. This means that the parties are generally bound by the arbitrator`s decision, even if it is incorrect or unfair.
2. Limited Discovery: In court, parties can use various methods of discovery to gather evidence and information. In arbitration, the parties are typically limited in their ability to obtain information from each other.
3. Limited Legal Remedies: If one party violates the NDA, the other party`s legal remedies may be limited in arbitration. For example, an arbitrator may not have the power to award injunctions or other equitable relief.
How to Draft an Arbitration Clause
If you decide to include an arbitration clause in your NDA, there are several important factors to consider:
1. Specify the Rules: Make sure to specify which rules of arbitration will apply to the dispute. This may include the American Arbitration Association (AAA) rules or the International Chamber of Commerce (ICC) rules.
2. Choose an Arbitrator: Determine who will serve as the arbitrator in the event of a dispute. This could be a single arbitrator or a panel of three arbitrators.
3. Set the Venue: Decide where the arbitration will take place. This could be in a specific city or region, or it could be conducted entirely via video conference.
4. Waive Class Action Rights: If you want to avoid the risk of a class action lawsuit, you may include a provision waiving the right to bring a class action.
Conclusion
In conclusion, an arbitration clause can be a useful addition to an NDA, providing speedier resolution, greater control, and confidentiality. However, it`s important to weigh the drawbacks, such as limited review and legal remedies, against the benefits. When drafting an arbitration clause, make sure to specify the rules, choose an arbitrator, set the venue, and waive class action rights if desired. By following these guidelines, you can help ensure that your NDA is enforceable and effective.