Information contained in this publication is intended for informational purposes only and does not constitute legal advice or opinion, nor is it a substitute for the professional judgment of an attorney.
Employers concerned about the risks and expenses associated with employment litigation have increasingly required their employees to agree to arbitration in the event of a dispute. Even upon the issuance of the arbitrator’s final decision, however, a court’s intervention may still be necessary. At the very least, the court can actually enforce an arbitration award, whereas the arbitrator cannot. Moreover, the losing party in the arbitration may seek to vacate the arbitrator’s decision on limited grounds, or seek further review of the district court’s decision by filing an appeal with the appellate court.
On April 8, 2021, the U.S. Court of Appeals for the Fourth Circuit, in Beckley Oncology Associates v. Abumasmah, considered the extent to which the courts could be involved in reviewing an arbitrator’s decision. In a matter of first impression, the Fourth Circuit held that appellate waivers in arbitration agreements are enforceable, as long as the agreement allows an initial review by the district court.
In 2012, Beckley Oncology Associates (BOA), a cancer treatment practice, hired the defendant as a medical oncologist. The employment agreement contained an arbitration provision stating, among other things, 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 doctor’s employment with BOA ended in 2015. A dispute arose over the size of an incentive bonus. The parties proceeded to arbitration. The arbitrator ultimately decided that BOA owed the doctor approximately $170,000 as compensation for the bonus he was denied. BOA subsequently asked the U.S. District Court for the Southern District of West Virginia to vacate the arbitration award on the grounds that the arbitrator disregarded plain language in the employment agreement. The district court disagreed and confirmed the arbitrator’s award. BOA appealed the decision to the Fourth Circuit.
The Fourth Circuit’s Decision
The Fourth Circuit held that the parties can agree to waive appellate review of an arbitrator’s decision, provided that the arbitration provision allows the district court to conduct a preliminary review. In reaching this decision, the Fourth Circuit relied on a Tenth Circuit decision, in which the court reasoned that a provision prohibiting appellate, but not district court, review is “a compromise whereby the litigants trade the risk of protracted appellate review for a one-shot opportunity before the district court.” Moreover, the Fourth Circuit noted a Ninth Circuit decision, which concluded that “[p]ermitting parties to contractually eliminate all judicial review of arbitration awards would not only run counter to the text of the FAA [Federal Arbitration Act], but would also frustrate Congress’s attempt to ensure a minimum level of due process for parties to an arbitration.” In the dispute between BOA and the doctor, because the parties used the language “without any right of judicial review or appeal” in their arbitration provision, the parties ensured that the trial court’s review of the arbitrator’s decision – either confirming or rejecting the award – would be the final word.
In addition, the Fourth Circuit noted that appellate review is routinely waived in other contexts, such as criminal plea agreements, “where the stacks, namely years of lost liberty, are far higher than the monetary award at issue here.” The Fourth Circuit explained that “[i]f defendants can waive fundamental constitutional rights such as the right to counsel, or the right to a jury trial, surely they are not precluded from waiving procedural rights granted by statute.” The Fourth Circuit acknowledged that while the language of the FAA provides that a party “may” appeal an order confirming or denying an arbitration award, nothing in the statute precludes an express waiver of that appeal.
The Fourth Circuit appears to strike a middle ground by permitting waiver at the appellate level, if there has been an initial review by the district court, as a way to ensure due process rights while respecting the decision of the parties to seek an alternative venue to litigation. The Fourth Circuit notes that the scope of judicial review of arbitration awards is already narrow in that the courts’ “province is not to determine the merits of the dispute between the parties but rather to determine only whether the arbitrator did [their] job—not whether [they] did it well, correctly, or reasonably, but simply whether [they] did it.” Accordingly, the Fourth Circuit reasoned that “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,” but can further the purposes of the FAA and arbitration, generally, by saving parties the time and costs associated with litigation.
Implications for Employers
The key takeaway from the Fourth Circuit’s decision is that employers in this circuit can agree to forego appellate review, and instead limit the review of arbitration awards by district courts. Employers should consider the pros and cons associated with such approach, however. For instance, although bypassing the right to appellate review would inevitably lead to a reduction in time and costs expended, the employer may feel uncomfortable with only having a limited “one-shot opportunity” before the district court. Practically speaking, however, although appellate review provides employers with another chance at reversal of an unfavorable award, in practice, such reversals are rare. Employers should carefully consider whether and how to craft arbitration agreements in the wake of this decision.