Tuesday, November 27, 2012

Supreme Court of the United States Reverses Oklahoma Non-Compete Decision

It is not often - never? - that the Supreme Court of the United States renders a decision that impacts non-compete law.

But such is the case in one of the year's more significant non-compete developments. In Nitro-Lift Techs. v. Howard, the Court held that the Supreme Court of Oklahoma improperly decided the enforceability of a non-competition agreement between a company and two former employees. The Court held that the mandatory arbitration clause required an arbitrator, not a state court, to decide the enforceability question under Oklahoma law.

This is a rare Oklahoma non-compete case, because non-competes are not enforceable in Oklahoma. Some limited activity restraints are, to be sure, but general non-competition covenants are treated in Oklahoma like they are in California and North Dakota.

It is perhaps for this reason why the ex-employees decided to file suit against their former employer, Nitro-Lift Technologies, when they quit and joined a competitor. Faced with a demand for arbitration, the employees went on the offensive to a court of law. This is a common tactic in employee friendly states like Oklahoma or California.

But, with an arbitration clause in the underlying agreement, did the ex-employees pursue the wrong avenue? The Supreme Court of Oklahoma said "no." A year ago, it boldly declared that "[o]ur jurisprudence controls this issue." The Supreme Court of the United States did not like that, chastising the state court for disregarding the law and not bowing to the broad policy favoring arbitration (even in state court) under the Federal Arbitration Act.

Due to that minor little thing called the Supremacy Clause, Oklahoma had to follow the Supreme Court's interpretation of the FAA. And because there was no challenge to the validity of the arbitration clause, an arbitrator - not a court - had to pass on whether the covenants not to compete were enforceable under Oklahoma law. Whatever arbitration panel is seated just might be influenced, however, by the Supreme Court of Oklahoma's decision that the non-competes were void against public policy.

A copy of Nitro-Lift, a per curiam decision, is below.

Nitro-Lift v. Howard

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