Just how strong is the Federal policy favoring arbitration of employment-related disputes? Strong enough to overcome a state supreme court’s interpretation of non-compete enforceability under state law, said the United States Supreme Court today in Nitro-Lift Technologies v. Howard, U.S. Supreme Court Case No. 11-1377.
Two employees of Nitro-Lift quit their jobs and began working for a competitor. Both employees had signed confidentiality and non-compete agreements that included an arbitration clause. Claiming that the employees had breached their noncompetition agreements, Nitro-Lift served them with a demand for arbitration. The employees responded by filing a lawsuit in state court, asking the court to declare the noncompetition agreements null and void and to enjoin their enforcement. On appeal, the Oklahoma supreme court declared that the arbitration clauses were void and unenforceable as against the state’s public policy limiting the enforceability of noncompetition agreements. Today, the Supreme Court granted certiorari and immediately vacated the state supreme court’s ruling. The Court held that, under the Federal Arbitration Act, it is for the arbitrator to decide in the first instance whether the covenants not to compete are valid as a matter of applicable state law, and that, under the Supremacy Clause, the state courts must abide by the FAA.
The U.S. Supreme Court has issued an unprecedented number of cases in the last two years on enforceability of arbitration agreements, each strongly upholding the parties’ agreement to arbitrate disputes and empowering the arbitrator to determine issues under the agreement. The Supreme Court’s trend continued today in Nitro-Lift. Employers should carefully consider whether to include arbitration clauses in their employment, non-compete and confidentiality clauses. Such agreements allow the employer to choose the forum and decision-maker in these often hotly-contested issues.