October 20, 2014

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October 17, 2014

USSC: Validity Of Noncompetition Agreement Containing Arbitration Provision Cannot, Under The Supremacy Clause, Be Addressed By State Supreme Court

The U.S. Supreme Court ruled yesterday that the Oklahoma supreme court acted improperly by ruling on the validity of employment-related noncompetition agreements containing valid arbitration provisions, rather than leaving that determination to the arbitrator.  In Nitro-Lift Technologies v. Howard, two former employees filed an action in state court seeking a declaration that their noncompetition agreements were null and void under state law.  Ultimately, the state supreme court held that the agreements were unenforceable pursuant to an Oklahoma statute which limits the enforceability of noncompetition agreements.

The Court vacated that decision, holding that, under the Federal Arbitration Act, it is for the arbitrator to decide in the first instance whether the noncompetition agreements were valid as a matter of applicable state law.  The Court further explained that, although the agreements’ validity was a state law issue, pursuant to the Supremacy Clause, state courts must follow the FAA.  The Nitro-Lift decision is yet another example of the Court reiterating its position that the FAA embodies a “national policy favoring arbitration” and that national policy should guide courts when faced with an arbitration agreement.  Employers seeking to enforce arbitration agreements often meet resistance in state court but, as Nitro-Lift demonstrates, they are backed by a strong national policy favoring private dispute resolution.

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