Federal Law Reigns Supreme In Employment Arbitrations

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A recent United States Supreme Court ruling is part of a growing trend of decisions enforcing arbitration clauses, in a broad range of transactions, on the grounds that federal policy, as expressed by the Federal Arbitration Act, governs over conflicting state laws.

In a unanimous per curiam decision, the U.S. Supreme Court ruled that when an employment contract contains a valid arbitration clause, the arbitrator, rather than the court, should decide the validity of the rest of the contract.

The case, Nitro-Lift Techs. LLC v. Howard,  No. 11-1377, was an appeal of an Oklahoma Supreme Court decision which struck down a noncompetition clause in an employment contract because the court determined the clause was contrary to Oklahoma's public policy.  The Oklahoma Supreme Court acknowledged that the contract contained a valid arbitration clause, but held that a state court, rather than an arbitrator, could properly decide the validity of the contract's noncompetition clause. The Oklahoma court ruled that its decision was based purely on state law, independent of any federal law. 

The U.S. Supreme Court reversed the Oklahoma court, ruling that, when a contract is covered by the Federal Arbitration Act, the court has the power to determine whether the contract contains a valid arbitration clause. Once that determination is made, and one of the parties has moved to compel arbitration, then the validity of the rest of the contract is to be determined by the arbitrator, and not by the court.

 
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If you have any questions regarding this decision or how it could impact your organization, please contact William Robbins at brobbins@polsinelli.com or 816.395.0637, or another member of our team.