Arbitration Agreement Inoperative: What It Means and What You Should Know

Arbitration agreements have become a common tool used by businesses to handle disputes without resorting to the courts. However, what happens when an arbitration agreement is declared inoperative? In this article, we will explore what it means for an arbitration agreement to be inoperative and how it can affect your business.

What is an arbitration agreement?

An arbitration agreement is a contract entered into by two parties where they agree to resolve any disputes that may arise between them through arbitration rather than through the court system. The agreement usually specifies the rules that will govern the arbitration process, such as the location of the arbitration hearing, the number of arbitrators, and the procedure for selecting the arbitrators.

Why do businesses use arbitration agreements?

Businesses use arbitration agreements for several reasons. First, arbitration is generally faster and less expensive than going to court. Second, arbitration outcomes are usually private, meaning that the details of the dispute and the resolution are not made public. Finally, businesses may believe that arbitration offers a more predictable outcome than a court proceeding.

What does it mean for an arbitration agreement to be inoperative?

An arbitration agreement is said to be inoperative when it cannot be enforced. There are several reasons why an arbitration agreement might be deemed inoperative. One common reason is when the agreement is illegal under state or federal law. For example, an arbitration agreement that requires employees to waive their right to bring a class-action lawsuit may be deemed illegal.

Another reason why an arbitration agreement might be declared inoperative is if the agreement is unconscionable. Unconscionability refers to agreements that are so one-sided or oppressive that they shock the conscience. For instance, an arbitration agreement that requires an individual to travel to a foreign country to participate in the arbitration process may be deemed unconscionable.

What are the implications of having an inoperative arbitration agreement?

When an arbitration agreement is declared inoperative, the parties to the contract will have to resolve their dispute through the court system. This means that the dispute will become a matter of public record, and the outcome of the case will be made public. Additionally, the legal fees associated with going to court can be significantly higher than the fees associated with arbitration.

What should you do if your arbitration agreement is declared inoperative?

If your arbitration agreement is declared inoperative, you should seek legal counsel immediately. A lawyer can explain the implications of the ruling and help you determine the best course of action. Depending on the circumstances, you may want to try to negotiate a settlement with the other party or take the case to court.

Conclusion

Arbitration agreements are a popular tool used by businesses to manage disputes, but when an agreement is declared inoperative, the parties will have to rely on the court system to resolve their issues. This can be a costly and time-consuming process, and it may result in public exposure of the dispute and its resolution. If your arbitration agreement is declared inoperative, seek legal advice to determine the best course of action to protect your business interests.