U.S. Supreme Court Confirms That Validity of Agreement is a Question for the Arbitrator

U.S. Supreme Court Confirms That Validity of Agreement is a Question for the Arbitrator

      In a per curiam decision, the U.S. Supreme Court has reversed the Oklahoma Supreme Court and made clear that the question as to the enforceability of a contract that contains an arbitration clause is a matter to be resolved by the arbitrator, and not by a court.  Nitro-Lift Technologies, L.L.C. v. Howard, __ U.S. __, 2012 WL 5895686 (Nov. 26, 2012). 

      Two employees of Nitro-Lift Technologies, L.L.C. entered into confidentially and non-competition agreement with their employer.  Those same agreements contained a clause directing that any disputes arising out of the agreement would be resolved by arbitration.  Those employees left the employment of Nitro-Lift, going to work for a competitor.  Nitro-Lift gave notice of arbitration, whereupon the employees, in state court, filed an action seeking a declaration that, under Oklahoma state law, the non-competition agreements are unenforceable.   Oklahoma law provides:

A.  A person who makes an agreement with an employer, whether in writing or verbally, not to compete with the employer after the employment relationship has been terminated, shall be permitted to engage in the same business as that conducted by the former employer or in a similar business as that conducted by the former employer as long as the former employee does not directly solicit a sale of goods, services or a combination of goods and services from the established customers of the former employer.

B. Any provision in a contract between an employer and an employee in conflict with the provision of this section shall be void and unenforceable.  Okla. Stat. tit. 15 § 219A.

         While the trial court dismissed the suit on the basis of the arbitration clause, the Oklahoma Supreme Court accepted the appeal and ruled that the non-competition agreements are unenforceable under Oklahoma law.  Nitro-Lift appealed, asserting that it is the purview of the arbitrator, and not of a court, to determine the enforceability of the agreements to arbitrate. 

            The U.S. Supreme Court came down on the side of Nitro-Lift.

            Setting aside several arguments of the Oklahoma Supreme Court including that its ability to enforce the specific Oklahoma statutes should trump the general policy embodied in the Federal Arbitration Act in favoring arbitration, the Supreme Court stated that “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.”  2012 WL 5895686, *3.  On that basis, the decision of the Oklahoma Supreme Court was vacated and the case remanded for further proceedings consistent with this opinion.