Use Arbitration to Protect Non-Competes

Employers have traditionally used choice-of-law or forum-selection clauses to secure a favorable venue in which to litigate validity and scope of a non-competition provision and avoid unfriendly state law. In certain jurisdictions these clauses have not been effective. Most problematic are those – like North Dakota, Montana, Oklahoma, and California – with a stated “fundamental public policy” against non-competes.

The Supreme Court’s recent decision in Nitro-Lift Technologies LLC v. Howard suggests a solution: a properly drafted arbitration provision in the employment agreement would allow for efficient low-cost enforcement, and offer multi-state employers greater confidence in the enforceability of their agreements.

An effective arbitration clause must be mandatory. It should contain a choice-of-law provision and an exclusive forum-selection clause, providing that the arbitration take place in a particular state under that state’s law. It should explicitly state that the arbitrator has authority to grant injunctive and provisional relief to enforce the terms of the agreement. To address the need for speed, the parties should agree that the arbitrator apply the AAA Optional Rules for Emergency Measures of Protection. To deter a challenge, the parties may include a provision providing for attorney fees in enforcing the arbitration clause. It should be drafted in clear and simple terms, flagged with individual headings.

According to Nitro-Lift, public policy will not prevent enforcement of an arbitration clause. While in some jurisdictions “fundamental public policy” may trump choice-of-law and forum selection clauses, they cannot trump arbitration under the FAA.