Arbitration agreements have become increasingly common in contracts, especially in the business world. Such agreements require parties to settle disputes through arbitration instead of going to court. However, the enforceability of an arbitration agreement may be challenged, particularly if it is “unconscionable” or illegal. One issue that arises in the enforceability of an arbitration agreement is the separability of the agreement from the rest of the contract.
Separability of an arbitration agreement means that the agreement to arbitrate is distinct from the rest of the contract and can survive even if other provisions of the contract are deemed unenforceable. The concept of separability is recognized in the Federal Arbitration Act (FAA), which provides that an arbitration agreement “shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract” (9 U.S.C § 2).
The Supreme Court has further clarified the separability doctrine in the case of Prima Paint Corp. v. Flood & Conklin Mfg. Co. The Court held that challenges to the enforceability of the contract as a whole, rather than the arbitration agreement specifically, should be decided by the arbitrator. This means that a party cannot use the argument that the entire contract is unenforceable to avoid the arbitration agreement.
However, a challenge to the arbitration agreement itself can still be raised in court. This is where the doctrine of severability comes in. Severability means that if a court finds the arbitration agreement to be unconscionable or otherwise unenforceable, the rest of the contract can still be enforced unless it is dependent on the arbitration agreement. This means that the entire contract is not automatically invalidated if the arbitration agreement is found to be unenforceable.
The issue of separability and severability can be complex, and courts have different approaches to these concepts. Some courts adopt a “gateway” approach and require the arbitrator to decide all challenges to the validity of the arbitration agreement. Other courts take a more flexible approach and allow challenges to the arbitration agreement itself to be decided in court.
In any case, it is important for parties to ensure that their arbitration agreements comply with the law and are fair and reasonable. A well-drafted arbitration agreement that is separable from the rest of the contract can provide an efficient and cost-effective means of dispute resolution. However, parties should also be aware of the potential for challenges to the enforceability of their agreements and should seek legal advice to ensure that their agreements are drafted in a manner that maximizes their enforceability while minimizing risk.