Arbitration Agreement: Why it Survives Termination
An arbitration agreement is a contractual agreement between parties to resolve disputes outside of the court system, in front of an arbitrator or panel of arbitrators. This type of agreement has gained popularity over the years due to the benefits of a quick, confidential, and cost-effective way to settle disputes. However, there is a misconception that an arbitration agreement terminates once the parties’ business relationship ends. In reality, arbitration agreements can survive termination and still have legal force.
The survival of an arbitration agreement post-termination can be attributed to different factors, such as the wording of the agreement and the applicable state law. In many cases, arbitration agreements often contain a survival clause, which outlines the terms and conditions of the agreement that will survive termination. For example, the survival clause may specify that disputes arising under the agreement will continue to be resolved through arbitration, even after the termination of the underlying contract.
Furthermore, state law plays a significant role in determining whether an arbitration agreement will survive termination. In many states, such as Texas and California, courts have held that an arbitration agreement can be enforced even after the termination of the underlying contract, as long as the dispute relates to the performance or interpretation of the agreement.
The survival of an arbitration agreement post-termination has several benefits. First and foremost, it provides certainty to the parties involved. If a dispute arises after the termination of the underlying contract, the parties can rely on the arbitration agreement to resolve the dispute, instead of initiating costly and time-consuming litigation. Additionally, the confidential nature of arbitration proceedings can also be maintained, which can be especially important in sensitive business disputes.
In conclusion, an arbitration agreement can survive termination and still be enforced, provided that the agreement includes a survival clause and is in compliance with applicable state law. Parties that wish to ensure that their arbitration agreement will survive termination should work with an experienced attorney to draft a clear and comprehensive agreement that accounts for all possible scenarios. By doing so, parties can avoid the uncertainties and costs of litigation and ensure a quick and efficient resolution of any disputes that may arise.
