Nitro-Lift Technologies v. Howard

When parties enter into a mandatory arbitration contract, any claim attacking the validity of the contract's terms must be decided by the arbitrator in the first instance and any state statute providing otherwise is "displaced by the [Federal Arbitration Act]."

Respondents are two former employees who signed confidential non-compete agreements with Petitioner that required all disputes to be settled by arbitration.

After Respondents quit and began working for a competitor, Petitioner sought to enforce its non-compete agreement through arbitration. Respondents claimed that the non-compete clause was unenforceable by virtue of an Oklahoma statute that prohibits the use of non-compete clauses in employment contracts, and filed suit in Oklahoma state court seeking declaratory relief. The trial court held that the arbitration provision of the non-compete clause was valid, and dismissed the complaint, holding that, by virtue of the Federal Arbitration Act, the validity of the non-compete clause was for the arbitrator, not the court, to decide.

The Oklahoma Supreme Court reversed, and held that Oklahoma’s statute regarding non-compete clauses was enforceable and amounted to “adequate and independent state grounds” that would preclude federal review.

The Supreme Court of the United States, in a per curiam opinion, reversed and held that the Federal Arbitration Act is the supreme law of the land that declares a national policy favoring arbitration. The court further held that the Act’s substantive law is applicable in state and federal courts. As a result, so long as a mandatory arbitration clause is valid, any attack on a contract’s terms must be resolved by the arbitrator in the first instance, not by a federal or state court. Finally, with respect to the Oklahoma Supreme Court’s assertion that Oklahoma statute provides a sufficient basis for precluding federal review, the court held “when state law prohibits outright the arbitration of a particular type of claim, the analysis is straightforward: The conflicting rule is displaced by the [Federal Arbitration Act].”