The Oklahoma Supreme Court just found out that when the Supreme Court of the United States (SCOTUS) says that the Federal Arbitration Act (FAA) reflects a national policy favoring arbitration, it really means it.
On November 26, 2012, SCOTUS issued an opinion striking down an Oklahoma Supreme Court decision that had invalidated non-competition agreements which contained mandatory arbitration provisions on the basis that non-competition agreements are unenforceable under Oklahoma state law.
Eddie Lee Howard and Shane D. Schneider signed confidentiality and non-competition agreements with their employer Nitro-Lift Technologies, L.L.C. that provided that any employment disputes would be arbitrated in Houston. They later quit and joined a competitor after working for Nitro-Lift in Oklahoma, Texas, and Arkansas. They then asked an Oklahoma court to nullify the non-competition agreements after Nitro-Lift sought to force arbitration. That Oklahoma court refused to do so but when the case was appealed to the Oklahoma Supreme Court, it nullified the non-competition agreements because they were unenforceable under state law. The Oklahoma Supreme Court did, however, find the arbitration provisions valid.
Over the years SCOTUS has ruled numerous times that a challenge to the enforceability of the underlying agreement containing a mandatory arbitration provision must first be submitted to the arbitrator. When the Oklahoma Supreme Court ruled otherwise, it disregarded these cases. SCOTUS made clear in its decision that the Oklahoma Supreme Court was obligated to follow this precedent.
This decision reaffirms the national policy favoring arbitration by restating that judicial intervention in the arbitral process is very limited. The decision also serves as a reminder to state courts, even the highest ones, that SCOTUS reigns supreme when it comes to interpreting federal laws like the FAA.
The case is Nitro-Lift Technologies, L.L.C. v. Eddie Lee Howard, et al, 568 U.S. ___, 2012 WL 5895686 (2012).