For those of you who follow professional football, you are no doubt aware that Tom Brady, the 4-time Super Bowl winning Quarterback for the New England Patriots, recently came back from a suspension for (allegedly) deflating footballs. But why would I bring this up on our firm’s business law blog? Beside the implications for your fantasy football team, the reason is because Brady’s suspension was in large part a result of something called an arbitration clause in his contract.

Brady is represented by the NFL Player’s Association (the “NFLPA”), a union that advocates on behalf of players (who are employees) through a collective bargaining agreement with the National Football League (the “NFL”). In negotiating some provisions of NFL player contracts, the NFL and NFLPA have agreed to submit all disputes between the players (the employees) and the NFL (the employer), to what is called arbitration. Arbitration is a common way for private parties to resolve any disputes instead of going to court, and the decision to arbitrate is typically agreed upon between the parties in whatever contract governs the parties’ relationship.

To many, arbitration is a preferable method of dispute resolution for a few reasons:

The parties can specifically choose arbitrators to resolve their dispute that are knowledgeable in the particular area of dispute, and avoid the risk of drawing a circuit court or federal court judge without the background in that area;

Arbitration is not necessarily subject to the stringent rules of evidence found in trial court; and

Except in limited circumstances, the decision of the arbitrators is final and binding upon the parties, meaning protracted litigation and appeals are unlikely.

In Tom Brady’s case, he tried arguing that one of those limited circumstances should overturn the arbitration decision against him. United States Courts and Wisconsin Courts have a strong policy of deferring to arbitration decisions and only overturning them in circumstances where it is clear that the decision was corrupted, there was some evident bias, where there is evidence and meaningful procedural misconduct, or where the arbitrator exceeded his or her power at some point in the arbitration.

Brady’s arbitration was unusual because the arbitrator was Roger Goodell, the Commissioner of the NFL. Brady’s argument was that Goodell acted with evident bias, that there was procedural misconduct, and that Goodell exceeded his power as an arbitrator. After having the arbitration decision overturned in circuit court in 2015, in summer 2016, the 2^nd Circuit Court of Appeals (in New York) finally ruled against Brady, deciding that the actions of Goodell were not egregious enough to upset the policy of deferring to arbitration decisions. Ultimately, Brady accepted the suspension, foregoing an opportunity to take the case to the United States Supreme Court.

Ok, But What Does This Have to Do With Your Business?

            The Brady case is another illustration that contractually opting for arbitration is preferable for those who prioritize cost-effectiveness in dispute resolution. The law that defers to arbitration in the United States doesn’t just apply to high-profile athletes and employers bringing in billions of dollars in revenue like the Tom Brady and the NFL. Because of this, the likelihood of an arbitration decision being overturned is low for all parties who opt for it to resolve their disputes.

For all businesses, when entering into contracts with third parties like vendors, employees or customers, both parties have incentive to minimize the risks involved in your relationship, many of which are uncertain and unforeseeable. You can even agree how costs will be allocated based upon which party is successful. Where a dispute arises, opting for a cost-effective and time sensitive solution to limit the litigation through arbitration may be a preferred option over going to state or federal court.

Not every contract calls for an arbitration clause, however. Because of US Courts’ policy to not upset arbitration decisions, opting for arbitration to resolve your disputes also means that you will have to live with the consequences of the decisions, even when it goes against you. Accordingly, arbitration should be opted to only in strategic situations, and contracts containing such clauses should be drafted by an attorney who has knowledge of the risks prevalent in your particular industry as well as local contract law. If you have any questions about how you can manage your business’ risks through arbitration clauses, contact one of the business attorneys at Schober Schober & Mitchell, S.C. We would be happy to help.