Fourth Circuit $1.2M Price Restoration Highlights Risk of Arbitration Agreements | Miles and Stockbridge PC

On February 24, 2022, the Fourth Circuit reinstated a $1,186,975.00 arbitration award for a North Carolina securities wholesaler (“Warfield”) who alleged that his former employer ICON Advisers Inc. (“ICON”) unlawfully dismissed him without cause. Warfield v Icon Advisers, Inc., No. 20-1690, __F.4th__, 2022 WL 552029, (4th Cir. February 24, 2022). North Carolina, like most states in the United States, is an at-will employment jurisdiction. Employment at will means that an employer can terminate an employee at any time for any reason except unlawful, with or without notice and with or without cause. Additionally, an employee is free to leave employment at any time for any reason or without any adverse legal consequences. Nevertheless, the Court determined that Warfield was able to collect the $1.2 million. How could this happen?

Previous procedures
In 2017, Warfield was hired and later fired from ICON. Both parties agreed that Warfield’s employment fell under the jurisdiction of the Financial Industry Regulatory Authority (FINRA), and that an arbitration panel would therefore resolve the dispute. In 2019, Warfield argued before the arbitration committee that the mere fact that disputes over his employment had to be resolved by arbitration meant that he could only be terminated for cause. The arbitrators agreed with Warfield and found that ICON was liable to Warfield for $1.2 million in compensatory damages for wrongful termination without cause. The arbitrators’ decision contained no further explanation as to the basis of the award.

Pursuant to federal arbitration law, Warfield petitioned the United States District Court for the Western District of North Carolina to enforce the award. Instead, the Court overturned the arbitration panel’s ruling, finding that the arbitration panel showed a clear disregard for the law, citing the statute that North Carolina law and that of the Fourth Circuit prevented Warfield’s wrongful dismissal without cause. Specifically, the court cited a Fourth Circuit case that “when arbitrators imply a termination clause ‘for cause’ in a private employment contract that expressly provides for termination ‘at will’, the arbitrators do more than committing a permissible error of law, they exceed their authority by ignoring the plain language of the agreement.[1} Warfield appealed the district court’s decision.

Fourth Circuit Decision
The Fourth Circuit did not see the case the same way the District Court did. Numerous times in its decision, the Fourth Circuit noted the extremely high standard to overturn an arbitration panel’s decision. The Fourth Circuit noted that some courts, including the Seventh and Eighth Circuits, have found that the existence of an arbitration agreement implies protections against being fired without just cause. Carefully walking through the case law cited by both parties but declining to express an opinion on their persuasiveness, the Fourth Circuit determined that “[i]In the absence of a clearly relevant and compelling precedent, the fact that the courts disagree on a particular legal issue weighs against questioning an arbitrator’s decision. Thus, the Court found that ICON failed to meet the burden of establishing that the arbitrators manifestly ignored the law, and reversed the district court’s decision and restored the $1.2 million award. of Warfield.

This decision is an important development that employers should take into account when considering whether or not to use mandatory arbitration provisions in employment contracts, particularly where an employer does not intend to change the employment relationship at will by default. It also highlights one of the risks of arbitration, which is the extremely limited review of an unfavorable decision. While it could go either way, depending on the outcome, employers should carefully weigh the risks and benefits of arbitration before choosing mandatory employment arbitration.

The opinions and conclusions in this article are solely those of the author, unless otherwise stated. The information in this blog is general in nature and is not offered and cannot be considered as legal advice for any particular situation. The author has provided the links referenced above for informational purposes only and, in doing so, does not adopt or incorporate the content. Any federal tax advice provided in this communication is not intended or written by the author to be used, and may not be used by the recipient, for the purpose of avoiding penalties which may be imposed on the recipient by the IRS. Please contact the author if you would like to receive written advice in a format that complies with IRS rules and that you can rely on to avoid penalties.

[1] Raymond James Fin. Servs., Inc. v. Bishop, 596 F.3d 183, 194 (4th Cir. 2010).

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Martin E. Berry