Since the Supreme Court’s 2018 Epic Systems ruling, employers increasingly rely on arbitration agreements for more efficient resolution of both single plaintiff and class action claims.  Prolonged judicial review of arbitration awards, however, can dilute that efficiency.  As a result, some employers include waivers of judicial review, in whole or in part, in their arbitration agreements.

But are such waivers permissible?  In a recent decision, the Fourth Circuit said “yes” as it relates to appellate review.

The Arbitration Award

The case arose out of a dispute about compensation.  Dr. Rami Abumasmah filed an arbitration claim against his former employer, Beckley Oncology Associates, Inc., alleging that the company improperly withheld certain incentive bonus payments.  After a hearing, the arbitrator awarded Dr. Abumasmah $167,034.

Request for District Court Review & Vacatur

Beckley subsequently sought judicial review of the award.  Dr. Abumasmah moved to dismiss, arguing that Beckley did not have a right to seek judicial review of the award because the agreement specifically stated that arbitrator awards “shall be final and conclusive and enforceable in any court of competent jurisdiction without any right of judicial review or appeal” (emphasis added).

The district court rejected Dr. Abumasmah’s argument, reasoning that waiver of judicial review was unenforceable because enforcing such a provision would “upset the balance between the FAA’s mechanisms for enforcing arbitration awards and permitting courts to substantively review the arbitral process and associated awards.”  The waiver of judicial review then, was not permissible under the FAA.  Ultimately, however, the district court confirmed the arbitrator’s award, which prompted Beckley to seek appellate review to the Fourth Circuit.

The Fourth Circuit Opinion

Beckley raised several issues on appeal, but the Fourth Circuit only needed to address the threshold question: did Beckley even have the right to seek judicial review of the arbitrator’s award at the appellate court level?

The Fourth Circuit held that, although the parties’ waiver of all judicial review was likely unenforceable, the arbitration agreement’s “appeal” provision was enforceable, which in turn prohibited appellate review.

In so holding, the Fourth Circuit adapted the reasoning of the Tenth Circuit, which previously held in a similar case that such a compromise allows parties to waive a statutorily-created right, appellate review, while ensuring the “minimum level of due process” that Congress sought to include in the FAA.  Moreover, the Fourth Circuit found persuasive the argument that criminal defendants may waive appellate review as part of plea-bargaining.  Because the stakes involved in criminal cases are much higher—years of lost liberty—it stands to reason that civil parties to arbitration agreements may waive their right to appellate review of arbitral awards.

The Fourth Circuit acknowledged tension with a Second Circuit opinion that analyzed the merits of an appeal even though the parties waived all judicial review as part of their arbitration agreement.  Notably, the Second Circuit opinion did not analyze the propriety of appellate review, only holding that the district court was free to consider the merits of the arbitration claim in order to discharge its duty under the FAA.  The Fourth Circuit disagreed with the Second Circuit’s approach.

Takeaways

It is an open question whether waivers of all forms of judicial review are per se enforceable or unenforceable.  At least within the Tenth and Fourth Circuits, however, encompassing the states of Maryland, North Carolina, South Carolina, Virginia, West Virginia, Colorado, Kansas, New Mexico, Utah, Wyoming, and Oklahoma, courts will enforce waivers of appellate review.

Because such waivers can be an important shield from costly and expensive appellate litigation, it is important that employers review their current agreements to ensure that any such waivers are enforceable.  If the waiver forecloses all judicial review, the agreement should contain a severability clause to allow a court to enforce a partial appellate waiver, as the Fourth Circuit did in Beckley.

Employers should also consider, as a threshold question, whether such waivers are in their best interests.  As the Beckley case made clear, waivers of judicial review can benefit either party.  An unfavorable arbitration award becomes all the more difficult for a losing party to overturn if appellate review is foreclosed altogether.