December 5, 2012

Nitro-Lift Technologies v. Howard: The Arbitration Locomotive Rolls On

By Paul Kirgis

As Jill Gross suggested in her post the other day, there is nothing novel about the Supreme Court’s per curiam decision in Nitro-Lift Technologies v. Howard, 568 U.S. ___ (2012). And the fact that the case seems unexceptional is powerful evidence for how extreme the Supreme Court’s arbitration jurisprudence has become.

Like most states, Oklahoma has long disfavored covenants not to compete. Oklahoma goes further than many in that it has enacted a statute, passed in 2001, rendering void and unenforceable any contract that prevents an employee from engaging “in the same business as that conducted by the former employer or in a similar business as that conducted by the former employer as long as the former employee does not directly solicit the sale of goods, services or a combination of goods and services from the established customers of the former employer.” Okla. Stat. Tit. 15 § 219A. Without question, Oklahoma considers the regulation of contracts in restraint of trade to be an important public policy matter.

In Nitro-Lift, the Oklahoma Supreme Court refused to enforce an arbitration agreement in a dispute involving a covenant not to compete. Unfortunately, the court’s sloppy reasoning left it open to a summary reversal by the Supremes. The Oklahoma court, citing only its own precedents, held that “the existence of an arbitration agreement in an employment contract does not prohibit judicial review of the underlying agreement.” That holding is obviously in conflict with Federal Arbitration Act precedent, so its reversal is unsurprising.

But the result of the decision is remarkable. Private employers in Oklahoma are flatly prohibited from including broad covenants not to compete in their contracts with employees. Enforcing that proscription—and thus protecting both the free market and the rights of employees—would appear to be a basic obligation of the Oklahoma courts. Yet the courts of Oklahoma have just been told that private employers can, simply by dropping a paragraph of text into an employment contract, divest them of jurisdiction to enforce Oklahoma’s law against covenants not to compete.

Decisions like Nitro-Lift are extraordinary in their disregard for principles of federalism. The Supreme Court’s arbitration jurisprudence uses a short procedural statute enacted almost 90 years ago to deprive states of their historical prerogative to regulate and enforce private contracts. As Richard Reuben has persuasively argued, this is not a conservative position. It’s an example of judicial activism in the service a radical Chamber of Commerce agenda.

In subsequent posts I will suggest ways that states might be able to respond to Nitro-Lift and similar cases in defense of their sovereignty.

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