Non-Compete Agreements with Arbitration Clauses Get Boost From US Supreme Court

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Employers and employees often enter into non-compete agreements that limit an employee’s ability to compete with an employer during, or after, the employee’s employment. These agreements are often the subject of intense litigation and their validity, and enforceability, varies from state to state. Many of these agreements also have arbitration provisions in them which require that any dispute under the agreement be decided by a private arbitrator instead of litigated in court. In Nitro-Lift Technologies, LLC v. Howard, decided by the Supreme Court of the United States on November 26, 2012, the Court made clear that an arbitration provision, enforceable by federal law, will be given effect even in cases where that means a dispute concerning a non-compete provision disfavored by state law will be kept out of the state courts.

The Federal Arbitration Act “declares a national policy in favor of arbitration.” When an Oklahoma trial court, and later the Oklahoma Supreme Court, ruled that a non-compete agreement could be reviewed by state courts, instead of by an arbitrator as contemplated by the parties’ employment contract, Oklahoma ran afoul of settled law from the Supreme Court of the United States. In doing so, Oklahoma courts violated the the Supremacy Clause of the United States Constitution. In short, an arbitrator, not a state court judge, will decide whether a non-compete provision is lawful if the provision stems from an agreement with a valid arbitration clause.

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Topics:  Arbitration, Arbitration Agreements, Federal Arbitration Act, Nitro-Lift Technologies, Non-Compete Agreements, Preemption, SCOTUS

Published In: Alternative Dispute Resolution (ADR) Updates, General Business Updates, Conflict of Laws Updates, Constitutional Law Updates, Labor & Employment Updates

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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