Employers and Employees May Contract To Arbitrate Non-Competes

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The U.S. Supreme Court has weighed in again on employer-employee arbitration agreements, this time holding that disputes over the enforceability and enforcement of non-competition and confidentiality covenants in contracts containing arbitration clauses must be decided by arbitrators. 

In Nitro-Lift Technologies, L.L.C. v. Howard,[1]the employer and employees agreed to arbitrate any "dispute, difference or unresolved question between" them.  Later, the employer demanded an arbitration regarding two former employees' supposed breaches of noncompetition and confidentiality covenants in the agreement.  The employees went to Oklahoma state court, attempting to have the covenants declared void under an Oklahoma state law that limits the enforceability of noncompetition agreements.  The Oklahoma Supreme Court eventually ruled that the covenants were "void and unenforceable" as contrary to Oklahoma state public policy.  But the U.S. Supreme Court reversed this decision.

The U.S. Supreme Court reasoned that, because the arbitration clause was enforceable under the Federal Arbitration Act, an arbitrator should have had the first opportunity to decide the validity of the noncompetition and confidentiality covenants. 

Not all employers want to arbitrate disputes over trade secrets, confidential information or noncompetition covenants.  Even employers that favor arbitration of employees' wrongful discharge and discrimination claims may shy away from arbitrating their own intellectual property and noncompetition claims.  Judges might have more experience than the available arbitrators with such covenants and with applicable state laws.  Some judges may be more likely to enforce such covenants.  In any case, the enforcement of an injunction from an arbitrator might still require court involvement.  However, for employers that want to, and agree to, have arbitrators decide their intellectual property and noncompetition claims, Nitro-Lift is a major victory.


[1] Nitro-Lift Technologies, L.L.C. v. Howard, Case No. 11-1377, 568 U.S.

 

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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