Arbitration agreements are commonly included in contracts to resolve disputes outside of court. However, there are instances where the agreement may be voided. In this article, we will discuss the reasons why an arbitration agreement may be voided.
Lack of Capacity or Authority
The first reason for voiding an arbitration agreement is when one party lacks the capacity or authority to enter into the agreement. This can happen when a person signs a contract without understanding the terms of the agreement or has been coerced into signing it. Additionally, if a party is not authorized to sign the contract on behalf of a company or organization, the arbitration agreement may also be voided.
- Incapacity due to mental illness.
- Coercion or duress in signing the contract.
- Unauthorized signing of the contract.
Fraud or Misrepresentation
Another reason for voiding an arbitration agreement is when one party uses fraud or misrepresentation to induce the other party to sign the contract. For instance, if one party knowingly makes false statements about the terms of the agreement to the other party, the agreement may be voided.
- Providing false information about the terms of the agreement.
- Concealing important information regarding the agreement.
- Making promises that cannot be kept.
Unconscionable Contract Terms
An unconscionable contract is one that is so one-sided and unfair that it shocks the conscience. If an arbitration agreement contains unconscionable terms, a court may refuse to enforce it.
- Using complex legal language that is difficult to understand.
- Imposing high fees or costs on one party.
- Limiting the rights of one party in a significant way.
Breach of Contract
If one party breaches the underlying contract, the arbitration agreement may be voided. For example, if one party fails to perform their obligations under the contract, the other party may seek to void the entire agreement, including the arbitration clause.
- Failure to pay for goods or services.
- Failure to deliver goods or services as agreed.
- Breach of confidentiality or non-disclosure agreements.
Illegality
An arbitration agreement that requires the parties to engage in illegal activities or violate public policy will not be enforced. For example, an arbitration agreement that requires an employee to waive their right to file a discrimination claim would be considered illegal and against public policy.
- Requiring employees to sign away their rights to fair wages.
- Requiring employees to waive their rights to unionize.
- Requiring employees to waive their rights to benefits.
Changed Circumstances
Finally, an arbitration agreement may be voided if circumstances have changed since the agreement was signed. This can happen when there is a significant change in the law or if something else has occurred that makes it impossible for one party to fulfill their obligations under the agreement.
- Changes in laws or regulations affecting the agreement.
- Changes in market conditions that affect the ability to perform.
- Acts of nature that prevent fulfillment of the contract.
Conclusion
Arbitration agreements are a common way to resolve disputes outside of court. However, these agreements can be voided if certain conditions are met. Lack of capacity or authority, fraud or misrepresentation, unconscionable contract terms, breach of contract, illegality, and changed circumstances are all valid reasons for voiding an arbitration agreement. It is important for parties to carefully review the terms of any arbitration agreement to ensure it is enforceable before signing.