When two parties sign an arbitration agreement, they agree to settle any disputes through arbitration rather than going to court. However, what happens when a non-signatory to the agreement becomes involved in the dispute? Can they be bound by the arbitration agreement? The answer is yes, in some cases.
There are several scenarios in which a non-signatory may be bound by an arbitration agreement. These include:
1. Incorporation by reference: In some cases, a non-signatory`s agreement with one of the signatories may incorporate the arbitration agreement by reference. For example, if a contractor agrees to perform work for a company that has already signed an arbitration agreement with a third party, the contractor may be bound by that agreement.
2. Third-party beneficiary: A non-signatory may also be bound by an arbitration agreement if they are a third-party beneficiary. For instance, if a company signs an agreement with a supplier that includes an arbitration clause, the supplier`s employees may be considered third-party beneficiaries and be bound by the arbitration agreement.
3. Agency: If a non-signatory is acting as an agent for one of the signatories, they may be bound by the arbitration agreement. For example, if a company hires a law firm to represent them in a dispute, the law firm may be bound by the arbitration agreement even if they did not sign it.
4. Equitable estoppel: Finally, a non-signatory may be bound by an arbitration agreement if they have acted in a way that is inconsistent with their right to challenge the arbitration agreement. For example, if a non-signatory sues a signatory in court over a dispute that is covered by the arbitration agreement, they may be estopped from challenging the agreement later.
It`s important to note that not all non-signatories will be bound by an arbitration agreement. The specific facts of each case will be considered when determining whether a non-signatory is bound. However, these scenarios provide a general framework for understanding when a non-signatory may be required to arbitrate a dispute.
In conclusion, although arbitration agreements are typically signed by two parties, non-signatories may be bound by the agreement in certain situations. This is an important consideration for businesses and individuals who are involved in disputes with multiple parties. Understanding the principles of incorporation by reference, third-party beneficiary, agency, and equitable estoppel can help parties navigate the complexities of arbitration agreements.