Spotlight for Recruiting ProfessionalsDecember 5, 2012
In a recent ruling that addresses arbitration agreements under the Federal Arbitration Act (FAA), the U.S. Supreme Court ruled that when a contract includes a valid arbitration provision, disputes about the contract’s enforceability should be decided by an arbitrator and not a court.
In the case (Nitro-Lift Technologies, LLC v. Howard), two Nitro-Lift employees had signed noncompete agreements that included an arbitration clause. The employees resigned and began working for one of Nitro-Lift’s competitors. The company then filed a demand for arbitration to enforce the noncompete agreement.
In turn, the former employees filed a lawsuit with the Oklahoma state court seeking to have the noncompete agreement rendered null and void. The state trial court dismissed the complaint, ruling that the arbitrator should rule on the validity of the noncompete agreement. However, an appeal to the Oklahoma Supreme Court reversed that decision.
Nitro-Lift then filed a petition to the U.S. Supreme Court, which overturned the decision of the Oklahoma Supreme Court. In doing so, the U.S. Supreme Court explained that the FAA applies in both federal and state courts and that, while courts can determine the validity of an arbitration clause in a contract, the arbitrator should determine the contract’s validity.
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