Escalation Clause, Escalation Path

A provision in an agreement, which provides how disputes must or shall be escalated before any litigation can begin. Usually, the path provides for a reference of the dispute to senior managers, then to senior uninvolved managers of the parties, thence to the CEO’s of the parties, before initiating mediation, before then moving to arbitration or a lawsuit.

In most jurisdictions, a lawsuit filed, or arbitration request before the escalation clause is complete will either be stayed for failure to exhaust all remedies, or alternately stayed pending the outcome of the escalation procedure.

It is important to draft the clause so that each step in an escalation path have a fixed amount of time for it to take place in, and that the next step can occur if there is non-cooperation in any earlier step (for example no response to correspondence); this prevents the escalation path become a perpetual ‘loop’ in which no outcome  is ever achieved, or it being used just to delay and play for time. Thus typically such a clause will limit to 15-30 days each step, i.e., the for managers, then CEOs to resolve the matter, and somewhat more time (30-90 days) for mediation.

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