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When Arbitration is Required for Employers and Employees

Recently, the U.S. Supreme Court affirmed the broad scope of the Federal Arbitration Act, holding that when a contract includes a valid arbitration provision, an arbitrator, and not a court, should be the first to decide whether the contract is valid under state law. The Act provides for judicial facilitation of private dispute resolution through arbitration and many Los Angeles business owners are likely familiar with the Federal Arbitration Act from drafting employee handbooks.

The Act provides for contractually-based compulsory and binding arbitration where both parties give up the right to an appeal on substantive grounds to a court. Basically, it requires that where the parties have agreed to arbitrate, they must do so in lieu of going to court and applies in both state courts and federal courts. There are additional aspects of the Act that an experienced small business lawyer in Los Angeles can address.

In a recent Supreme Court case, an Oklahoma employer sought to enforce an employee non-competition agreement containing an arbitration clause.  Two employees subject to the agreement asked the Oklahoma state court to hold that it was void under state law.  While the employer argued that the contract’s enforceability should first be decided by an arbitrator, the Oklahoma Supreme Court disagreed and stated that the non-competition agreement was “void and unenforceable as contrary to Oklahoma’s public policy.”

However, on review, the U.S. Supreme Court found that the Oklahoma Supreme Court ignored longstanding precedent establishing that attacks on the validity of the contract as a whole, as distinct from attacks directed to the validity of the arbitration clause, must be resolved by the arbitrator. In plain English, you and your employee might be bound to arbitration according to the terms of the employee handbook or contract.

For more information on arbitration, employee handbooks, and tips on dealing with employees, contact the experienced small business lawyers in Los Angeles at Hart Watters & Carter today. The skilled business attorneys at Hart, Watters & Carter have been helping clients in businesses-related matters in California for over 40 years. They will address your concerns about employee competition. For more information, click here.