For the third time in two years, the US Supreme Court has stood up for arbitration agreements, overturning yet another decision by a state court. The case is Nitro-Lift Technologies v. Howard. The Oklahoma State Court had ruled that the non-compete provision in an employment arbitration agreement was unenforceable because it is unconscionable.
Per the specifics of the case, Nitro-Lift Technologies, an oil well servicing company based in Louisiana, had given two of its ex-Oklahoma employees a demand for arbitration after they resigned and went to work for a competitor. Nitro contended that the former employees had violated a non-compete clause and that because of this they must now arbitrate. Meantime, the two ex-employees filed a lawsuit in Oklahoma state court seeking a declaratory judgment that the non-compete provisions could not be enforced.
The Oklahoma Supreme Court would go on to rule in the ex-Nitro employees’ favor, finding that state precedent allows the court jurisdiction over arbitration agreement provisions and that the non-compete clause is a violation of public policy there. Therefore, the court found, the clauses could not be enforced and are void.
Nitro’s attorney would go on to argue that this ruling was not consistent with SCOTUS precedent regarding arbitration’s primacy, per the Federal Arbitration Act. The company submitted a cert petition noting that the US Supreme Court had recently reversed the Florida’s state court ruling in KPMB v. Cocchi after the lower court had decided that Ponzi fraud victims could sue the auditor. The Supreme Court had also found in Marmet Health Care v. Brown that under the Federal Arbitration Act, West Virginia cannot bar arbitration in nursing home cases involving wrongful death and personal injury. Other lawsuits in which the nation’s highest court made similar determinations include Buckey Check Cashing v. Cardegna and AT & T Mobility v. Concepcion.
The Supreme Court’s justices apparently remain adamant that states cannot impose their own ideas regarding public policy on arbitration agreements. The court has described the FAA as the “supreme Law of the Land,” and they interpret the act in a manner that lets businesses make employees and consumers arbitrate instead of go to court. This can be a benefit for businesses, especially as a cost-saving measure (and especially when class actions are involved).
The ex-Nitro employees will now arbitrate their non-compete claims in Houston. According to their attorney, the two of them did not know that they had given up certain rights when they signed the agreement.
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US Supreme Court Scolds Oklahoma Supremes for Discounting Arbitration Precedent, ABA Journal, November 26, 2012
Nitro-Lift Technologies v. Howard, US Supreme Court, (PDF)
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