Arbitration clauses are sometimes included in contracts and require disputes between the parties to be resolved through arbitration instead of filing a lawsuit. The enforceability of arbitration provisions is an issue that often arises when parties seek to amend contracts which contain arbitration provisions.
Arbitration provisions appear in a wide variety of contracts including employment agreements, supply contracts, consumer purchase contracts, loan agreements and even professional baseball players’ contracts. The parties agree to appoint a neutral arbitrator to decide any disputes between them instead of filing lawsuits. Under both federal law and the law of most states, arbitration agreements are generally valid and enforceable. The agreement to arbitrate is contractual so how broad or narrow it is, whether it includes all disputes or only certain types of disputes, depends on the language of the contract. For this reason, when it comes to arbitration provisions, as with all contract terms, it is important to say exactly what you mean.
When parties seek to amend a contract containing an arbitration provision, questions can arise concerning whether the parties meant to keep or abandon the arbitration provision in the amended contract. The amendment may be in the form of a simple change to the original agreement, like an extension of a deadline, or a completely new agreement that supersedes the original. In either case, the enforceability of the arbitration provision will depend on the specific terms of the amendment.
The situation becomes more complicated when the amendment is silent on the issue of arbitration. In such cases, courts will try to determine whether the parties intended to keep the arbitration clause or abandon it. If the parties’ intent is unclear, courts will apply state contract law to interpret the amendment and determine whether the arbitration provision survives.
In some cases, courts have held that a broad amendment that replaces the entire contract with a new agreement effectively nullifies the arbitration provision.
PLF’s client signed an employment agreement that contained an arbitration clause. The client had an ongoing dispute regarding whether the client’s bonus compensation was being properly calculated and paid. When the employer terminated the client’s employment and offered a new employment agreement under which it would be impossible for the client to calculate his bonus compensation and check the employer’s calculations, he declined. The parties then negotiated an “amendment” to the employment agreement.
The amendment specifically said certain provisions of the original employment agreement were preserved, including the confidentiality provision, the provision prohibiting the client from poaching the employer’s other employees, and the provision regarding a termination of the client’s employment without cause, which the parties agreed was the basis of the termination. The amendment also said that both the employer and the employee would not have any obligations under the original agreement that were not preserved in the amendment. There was no specific reference to the arbitration provision in the amendment.
The client filed a lawsuit against the employer for not paying what was owed in bonus compensation and for an accounting to determine what was owed. The employer moved to compel arbitration of the dispute and stay the lawsuit. PLF attorney Kristi L. Browne argued that the amendment ended any obligation to arbitrate disputes because it was not expressly preserved in the amendment and the parties agreed they would have no other obligations under the agreement if they were not expressly preserved in the amendment. The court ruled that the arbitration provision was no longer enforceable and allowed the lawsuit to go forward.
If you have questions about an arbitration provision in your contract of any kind, contact Kristi Browne at the Patterson Law Firm for a free consultation. firstname.lastname@example.org