In a ruling likely to encourage the use of arbitration agreements in employment, the U.S. Supreme Court on Monday, November 26, 2012 ruled that it was improper for a court to evaluate whether or not an arbitration agreement was valid. Instead, the Supreme Court ruled that it was the obligation of the arbitrator to determine if the agreement was valid.
In this case, former employees of an oil and gas well consulting business sued in Oklahoma state court in an effort to avoid the terms of their restrictive agreement. After working for Nitro-Lift, the former employees quit and began working for a competitor. Nitro-Lift served the employees with a demand for arbitration, the former employee sued in state court in Oklahoma arguing that the agreements were invalid and halting the arbitration. The case went to the Oklahoma Supreme Court that held the agreements invalid under Oklahoma law. The case was appealed to the U.S. Supreme Court who reversed.
The Supreme Court found that the decision on whether the agreements were enforceable was for the arbitrator to decide, not the Courts. Basing its decision on the Federal Arbitration Act, the Supreme Court held that the Oklahoma Supreme Court overstepped its bounds.
Going forward, this opinion will further bolster the use of arbitration agreements in employment agreements. And, employers who may have questionable agreements under state law, may well get a better chance in arbitration. The case can be found here.