An employer can enforce an arbitration clause in an employment contract that waives any appellate review, the 4th U.S. Circuit Court of Appeals has ruled in a matter of first impression.
The April 8 decision allows employers to put clear limits on protracted litigation of employment disputes, but in this case it was the employer who found the courthouse door closed when it objected to the outcome of arbitration.
The case highlights the need for careful consideration of employment contract language, according to one commentary.
The court’s published opinion from a unanimous three-judge panel is Beckley Oncology Assocs. Inc. v. Abumasmah (VLW 021-2-128).
Beckley Oncology Associates treats cancer patients at its office in Beckley, West Virginia, according to the court’s opinion. The practice hired oncologist Rami Abumasmah in 2012 and negotiated a two-year employment agreement drafted by BOA. The agreement provided that the parties would arbitrate any employment dispute.
The agreement said that the arbitrator’s decision “shall be final and conclusive and enforceable in any court of competent jurisdiction without any right of judicial review or appeal.” The agreement was to automatically renew for successive one-year terms and it included a provision for bonuses.
Abumasmah considered joining the partnership in 2014, but declined, remaining as an employee. Later that year he told BOA that he would depart for at least six months to care for his mother in Amman, Jordan. He left in June 2015. He said he did not expect compensation during his indefinite leave and offered to resign. The company sent him a separation agreement.
Abumasmah disagreed that a payment of $72,994 should be his entire incentive bonus due for 2014-15. He pointed to prior annual incentive bonuses of $141,000 and $242,000. BOA said he was not entitled to an incentive bonus for 2014-15.
Based on the contract formula for calculating his incentive bonus for the first two years of his employment, Abumasmah claimed he should have received a $328,070.57 bonus for his 2014-15 collections.
At arbitration, the parties clashed over the right formula to determine the final bonus. The arbitrator cited equitable principles of West Virginia law and awarded Abumasmah $167,030, representing 2.5% of the gross revenue he generated. The award was to prevent unjust enrichment of BOA and to compensate Abumasmah for the “extraordinary revenue” he produced in his third year of employment, the arbitrator said.
BOA asked a federal district judge to vacate the arbitration award, but the judge dismissed the complaint and confirmed the award. The judge said the clause prohibiting judicial review of the arbitration outcome was unenforceable, but he found no cause to overrule the award.
Appeal focused on waiver
On BOA’s appeal to the Fourth Circuit, the panel said the “threshold issue” is whether the agreement validly waived any right of appeal following the district court’s confirmation of the award. The issue was a matter of first impression in the Fourth Circuit, wrote Judge Albert Diaz for the panel, which also included Chief Judge Roger L. Gregory and Judge Robert B. King.
The panel looked to a 2005 ruling from the 10th U.S. Circuit Court of Appeals that held an appellate waiver enforceable.
“We agree with our sister circuit,” Diaz wrote.
The 10th Circuit reasoned that appeal waivers are consistent with the fundamental policy of the Federal Arbitration Act – to cut litigation costs by providing a “more efficient forum.”
The Fourth Circuit panel analogized the concept to criminal plea agreements, “where the stakes, namely years of lost liberty, are far higher than the monetary award at issue here.”
The panel said the landscape for arbitration review already is closely bound by the court’s prior interpretation of arbitration cases. The district courts’ job is “to determine only whether the arbitrator did his job – not whether he did it well, correctly, or reasonably, but simply whether he did it,” the court said, quoting a 2020 decision.
“Thus a contract provision purporting to bar a district or circuit court from reviewing an arbitrator’s decision on the merits is essentially meaningless, since the FAA forecloses all but the most limited review,” Diaz wrote for the panel.
“It may be that the parties can’t waive all judicial review of an arbitrator’s decision. But because the employment agreement contains a severability clause, and because unenforceable provisions in arbitration clauses are severable if they don’t go to the essence of the contract, we need not invalidate the appeal waiver,” the court said.
The court endorsed the sentiments of another 2021 Fourth Circuit panel lamenting that “[t]his genre of almost-reflexive appeal of arbitration awards seems to be an increasingly common course, leading to arbitration no longer being treated as an alternative to litigation, but as its precursor.”
“The reflexive appeal of an arbitration award is all the more lamentable when the parties have expressly waived that right,” the BOA panel concluded, dismissing the appeal.
BOA was represented by Justin M. Harrison of Charleston, West Virginia. Abumasmah was represented by Omar Dirar Ahmad of Huntington, West Virginia.
The language of arbitration agreements has taken on new importance in Virginia with “groundbreaking” new laws passed last year creating new employment rights to be litigated in state courts, according to an essay posted by lawyers with Reed Smith LLP.
“Given the recent wave of new employment laws and the Fourth Circuit’s decision, Virginia employers should carefully consider implementing arbitration agreements for their employees with an appellate waiver,” wrote attorneys Betty S.W. Graumlich and Mark J. Passero.