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.
Beckley Oncology Associates treats cancer patients at its office in West Virginia. It 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 included a provision for bonuses.
A few months after declining an offer to join the partnership, Abumasmah told BOA that he would need to depart for at least six months to care for his mother in Jordan, which he ultimately did in 2015. Abumasmah said he didn’t expect compensation during his indefinite leave and offered to resign. The company sent him a separation agreement, but the two parties reached an impasse about the amount of the incentive bonus that Abumasmah should receive for 2014-2015.
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, which represented 2.5 percent of the gross revenue he generated, and fell roughly in the middle of what each side had asked for. 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 Judge Irene C. Berger dismissed the complaint and confirmed the award. Berger said the clause prohibiting judicial review of the arbitration outcome was unenforceable but found no cause to overrule the award.
On BOA’s appeal, the 4th Circuit said that the threshold issue was whether the agreement validly waived any right of appeal following the district court’s confirmation of the award. Judge Albert Diaz, writing for a unanimous panel, said that the issue was a matter of first impression in the 4th Circuit but cited a 2005 ruling from the 10th U.S. Circuit Court of Appeals that had found that an appellate waiver was indeed enforceable.
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.” Diaz 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.”
Diaz said that the landscape for arbitration review already is closely bound by the court’s prior interpretation of arbitration cases, and 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,” 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.
“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 endorsed the sentiments of another 4th Circuit opinion from earlier this year, which lamented that “this 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,” Diaz wrote.
BOA was represented by Justin M. Harrison of Charleston, West Virginia. Abumasmah was represented by Omar Dirar Ahmad of Huntington, West Virginia.
The 11-page decision is Beckley Oncology Assocs. Inc. v. Abumasmah.