The Employer's Legal Resource: United States Supreme Court Overturns Oklahoma Supreme Court

12.01.12

One of the things we love about the e-newsletter is being able to update you when things change because things always change. Last week, the United States Supreme Court changed something for us.

Last December, we told you about the Oklahoma Supreme Court's decision in Howard v. Nitro-Lift. You can read the entire article here, but basically the Oklahoma Supreme Court struck a non-compete provision and outlined its thoughts on the limits of such a provision. We ended with the admonition - if you are an employer who uses (or wants to use) non-compete/non-solicit agreements for Oklahoma employees, you may want to consider limiting the language such that it complies with the letter of the law.

Well, the United States Supreme Court just vacated that opinion (meaning it no longer has any force) and has sent it back to the Oklahoma Supreme Court to reconsider.

We probably need to back up and see how we got here and what this means.

Eddie Howard and Shane Schneider entered into employment contracts with their employer Nitro-Lift. These contracts had non-compete provisions and non-solicit provisions. These contracts also had arbitration provisions.

Howard and Schneider brought a lawsuit. Nitro-Lift asked the court to send the matter to arbitration. The Oklahoma Supreme Court found that "the existence of an arbitration agreement in an employment contract does not prohibit judicial review of the underlying agreement" to determine the contract's validity. With that, the Oklahoma Supreme Court reviewed the non-compete provisions and found them unenforceable as against Oklahoma's public policy.

The United States Supreme Court took a look at this and disagreed - finding that the Oklahoma Supreme Court should not have looked any further than whether the arbitration provision was enforceable. Because the Oklahoma courts did not find the arbitration provision was unenforceable, according to the United States Supreme Court, the Oklahoma Supreme Court had no choice but to send the case to arbitration. It should have let the arbitrator decide (in the first instance) whether the non-compete provision was enforceable.

Now, don't throw away our December 2011 discussion of non-competes just yet. While it appears Howard and Schneider will head to arbitration to determine whether their non-compete is enforceable, the writings of the Oklahoma Supreme Court on this issue are still instructive. It is reasonable to assume that, in another case properly before it, the Oklahoma Supreme Court will make the same decisions on non-competes. There is nothing about the United States Supreme Court's decision which changes that.

So, what do you take away from this turn of events?

  • The Oklahoma Supreme Court, even though in a now-vacated opinion, has expressed strong views limiting the use of non-compete and non-solicit provisions in employment contracts. You would be wise to consider these opinions when drafting such provisions.
  • If you have an enforceable arbitration provision with your employees, expect that all questions of substance will be answered by an arbitrator. You will only get to a court's opinion if a lawsuit is filed after the arbitration.

By Kristen L. Brightmire, kbrightmire@dsda.com

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Rebecca D. Bullard

Rebecca D. Bullard

Rebecca represents clients primarily in labor and employment litigation and counsels clients regarding everyday employment matters. 

Oklahoma Employer's Law Blog

 


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