Tuesday, November 27, 2012

Surprise! SCOTUS Drops Noncompete / Arbitration Opinion

In case you didn't know it yet, the Supreme Court loves arbitration. So, what do you think happens when a state court decides a noncompete is unenforceable despite an arbitration clause dictating that all disputes be resolved by an arbitrator (aka not the state court)? If you answered "Supreme Court per curiam benchslap," then congratulations! You're the big winner!

On Monday, the Court issued its brief 5-pager in Nitro-Lift Technologies, LLC v. Howard. I think the opening paragraph pretty much sums it up:
State courts rather than federal courts are most frequently called upon to apply the Federal Arbitration Act(FAA), 9 U. S. C. §1 et seq., including the Act’s national policy favoring arbitration. It is a matter of great im­portance, therefore, that state supreme courts adhere to a correct interpretation of the legislation. Here, the Okla­homa Supreme Court failed to do so. By declaring the noncompetition agreements in two employment contracts null and void, rather than leaving that determination to the arbitrator in the first instance, the state court ignored a basic tenet of the Act’s substantive arbitration law. The decision must be vacated.
The FAA, as federal legislation, is the "supreme law of the land." State courts can't usurp the arbitrator's power even where, as here, there is a clear state statute that makes the noncompete unenforceable.