On February 24, 2022, the Fourth Circuit restored 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 fired him without cause. Warfield v. Icon Advisers, Inc., No. 20-1690, __ F.4th__, 2022 WL 552029, (4th Cir. Feb. 24, 2022). North Carolina, like most states in the United States, is an at-will employment jurisdiction. At-will employment means that an employer can terminate an employee at any time for any reason, except an illegal one, with or without notice and with or without cause. Additionally, an employee is free to leave a job at any time for any or no reason with no adverse legal consequences. Nevertheless, the Court determined that Warfield was able to collect the $1.2 million. How could this happen?
Previous Proceedings
In 2017, Warfield was hired and subsequently fired from ICON. Both parties agreed that Warfield’s employment was within the jurisdiction of the Financial Industry Regulatory Authority (FINRA), and thus an arbitration panel would resolve the dispute. In 2019, Warfield argued before the arbitration panel that the mere fact that disputes over his employment had to be resolved by arbitration implied that he could only be fired for cause. The arbitrators agreed with Warfield and concluded that ICON was liable to Warfield for $1.2 million in compensatory damages for wrongful termination without just cause. The arbitrators’ decision did not contain any other explanation for the basis of the award.
Pursuant to the Federal Arbitration Act, Warfield asked the United States District Court for the Western District of North Carolina to enforce the award. Instead, the Court vacated the arbitration panel’s decision holding that the arbitration panel showed manifest disregard for the law, citing law that both North Carolina and Fourth Circuit law precluded Warfield’s wrongful termination without just cause claim. Specifically, the court cited to a Fourth Circuit case that held that “where arbitrators imply a termination ‘for cause’ provision into a private employment agreement that expressly provides for termination ‘at-will’, the arbitrators do more than commit a permissible error of law, they exceed their authority by ignoring the agreement’s plain language.”[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]n the absence of clearly on-point and controlling precedent, the fact that courts disagree on a particular legal question weighs against second-guessing an arbitrator's award.” Thus, the Court concluded that ICON did not meet the burden of establishing that the arbitrators manifestly disregarded the law, and reversed the district court’s decision and reinstated Warfield’s $1.2 million award.
This decision is a significant development that employers should consider when considering whether or not to utilize mandatory arbitration provisions in employment agreements, especially when an employer does not intend to alter the default at-will employment relationship. It also highlights one of the risks of arbitration, which is the extremely limited review of an adverse decision. While this can cut both ways, depending on the result, employers should carefully evaluate the risks and benefits of arbitration before choosing mandatory arbitration of employment matters.
Opinions and conclusions in this post are solely those of the author unless otherwise indicated. The information contained 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 information purposes only and by doing so, does not adopt or incorporate the contents. Any federal tax advice provided in this communication is not intended or written by the author to be used, and cannot 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 which complies with IRS rules and may be relied upon to avoid penalties.
[1] Raymond James Fin. Servs., Inc. v. Bishop, 596 F.3d 183, 194 (4th Cir. 2010).
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