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What Happens When State Law Prohibits Arbitration of a Claim

Recently, in Nitro-Lift Technologies, LLC v. Howard, the United States Supreme Court took the opportunity to reiterate a bedrock principle with respect to arbitration provisions, particularly in the context of non-compete agreements which, the court conceded, many states disfavor:

 

“‘[W]hen state law prohibits outright the arbitration of a particular type of claim, the analysis is straightforward: The conflicting rule is displaced by the FAA.’” Marmet Health Care Center, Inc. v. Brown, 565 U. S. ___, ___–___ (2012) (per curiam)(slip op., at 3–4) (quoting AT&T Mobility LLC, supra, at ___–___ (slip op., at 6–7)). Hence, it is for the arbitrator to decide in the first instance whether the covenants not to compete are valid as a matter of applicable state law."

 

The Supreme Court issued this ruling and underscored the primacy of the Federal Arbitration Act ("FAA"), 9 U. S. C. §1 et seq., or as the Supreme Court called it, "the Supreme law of the land," including the Act’s national policy favoring arbitration.

 

The short of it is simply this: if you had a valid arbitration clause in your contract (whether in the employment context or otherwise), the Supreme Court has made it quite clear that it will be very, very difficult to avoid having your legal issues decided anywhere (yes, that specifically includes home-state courts that might have laws more sympathetic to your cause) other than by an arbitrator.