Contracting Jurisdiction: Arbitration of Noncompetition Disputes in Employment Agreements

Abstract

The law surrounding noncompetition agreements varies greatly among states. How broad can such an agreement be? What type of work can it cover? How long can it be enforced, if at all? Different states express vastly different policy preferences on the scope and enforceability of noncompetition agreements through legislation and common law. This creates uncertainty for both employers and employees. Increasingly, with support from the U.S. Supreme Court, arbitration clauses are being used to override the laws of particular states by contracting for the substantive law that will govern an eventual noncompetition dispute between employer and employee. This Article examines the ways in which noncompetition clauses and arbitration clauses must be drafted and read together within an employment agreement. It further explores the implications for the increasingly federalized nature of this aspect of employment law, analyzing recent state and federal case law. On balance, arbitration greatly bolsters the enforceability of noncompetition agreements by selecting favorable and predictable governing law. This reality has important implications for both employers and employees.

Keywords: employment, noncompetition, noncompete, arbitration, dispute resolution, employment agreement, employee rights

JEL Classification: K20, K31, K41