FINRA Arbitrators and Federal Courts Consider If A Terminable-At-Will Employee Can Be Wrongfully Terminated

May 9, 2022

Your broker-dealer just fired you. You're angry because they sandbagged you and it was a set-up, or so you say. All of which prompts you to dial a lawyer, pay a hefty retainer, and, maybe in a year (if you're lucky), you'll find yourself before a FINRA Arbitration Panel asking for damages for "wrongful termination." Your former employer says that you and your lawyer are morons because you're a terminable-at-will employee, and, duh, you can't wrongfully terminate someone who's an at-will employee. In response, your lawyer points out to the FINRA arbitrators that we're all sitting in an arbitration hearing room because the former employee was forced by the former employer and industry rules to arbitrate his employment disputes: There's nothing at-will about any employment subject to mandatory arbitration. Read today's blog to see how such a case fared.

2019 FINRA Arbitration Claim

In a FINRA Arbitration Statement of Claim filed in March 2019 and as amended, associated person Claimant Warfield asserted wrongful termination without just cause; defamation - libel per se; and violations of North Carolina's Unfair and Deceptive Trade Practices Act. 
James Warfield, Claimant, v. Icon Advisors, Inc. and Icon Distributors, Inc., Respondents (FINRA Arbitration Decision, 19-00732 / March 17, 2020)

Claimant Warfield ultimately sought $1,186,975 in wrongful termination compensatory damages, $82,613 in interest, $261,585.98 in hearing and attorneys' fees, and that his Form U5 be expunged and the following language inserted: "Awaiting Financing to Clear Tax Liens." 

Respondents generally denied the allegations, asserted affirmative defenses, and filed a Counterclaim seeking $85,520 plus costs and fees. 

The FINRA Arbitration Panel found Respondents jointly and severally liable and ordered them to pay to Claimant $1,186,975 in "compensatory damages for wrongful termination without just cause" plus $750 in reimbursed FINRA filing fees.. The Panel recommended the expungement of the Form U5 with the language of substitution sought by Claimant. 

2020 Dueling Motions to Confirm and Vacate

Claimant Warfield filed a Motion to Confirm the arbitration award in the United States District Court for the Western District of North Carolina ("WDNC"), and Respondents filed a Motion to Vacate.
James Warfield, Plaintiff, v. Icon Advisors, Inc. and Icon Distributors, Inc., Defendants (Order, WDNC, 20-CV-195/ June 16, 2020)

2020 WDNC Order: At-Will Employees Can't Be Wrongfully Terminated

The WDNC granted in part and denied in part Warfield's Motion to Confirm and the Icon Defendants' Motion to Vacate -- pointedly. the Court confirmed the FINRA Arbitration Panel's recommendation of expungement but vacated the FINRA Arbitration Panel's granting Warfield's claim for wrongful discharge without just cause. In pertinent part WDNC found that [Ed: footnotes omitted]:

[W]arfield's claim for "wrongful termination without just cause" (Doc. No. 3-3, p. 3) has no basis in North Carolina law because no such cause of action exists for "at-will" employees. See Kurtzman v. Applied Analytical Indus., 493 S.E.2d 420, 422 (N.C. 1997), rehearing denied, S.E.2d 594 (N.C. 1998) ("North Carolina is an employment-at-will state. This Court has repeatedly held that in the absence of a contractual agreement between an employer and an employee establishing a definite term of employment, the relationship is presumed to be terminable at the will of either party without regard to the quality of performance of either party. There are limited exceptions. First, as stated above, parties can remove the at-will presumption by specifying a definite period of employment contractually. Second, federal and state statutes have created exceptions prohibiting employers from discharging employees based on impermissible considerations such as the employee's age, race, sex, religion, national origin, or disability, or in retaliation for filing certain claims against the employer. Finally, this Court has recognized a public-policy exception to the employment-at-will rule."). Warfield has never alleged or argued that his termination was based upon an impermissible consideration or that Defendants violated a "public policy."

at Pages 4 -5 of the WDNC Order

As to the ramification of the FINRA Arbitration Panel's awarding Warfield damages for wrongful termination despite his status as an at-will employee, WDNC found that:

[T]he Defendants made the Panel aware of the clear, well-established law in North Carolina and the Fourth Circuit, and the Panel chose to disregard the that law. The arbitrator's Award therefore demonstrates manifest disregard and must be vacated. As noted earlier, the Court is mindful that vacating an arbitration award should be a "rare occurrence." However, under the circumstances of this case, the Court finds it appropriate.

at Page 7 of the WDNC Order 

2022 4Cir Opinion

Warfield appealed WDNC's Order vacating the FINRA Arbitration Award to the United States Court of Appeals for the Fourth Circuit ("4Cir"). James Warfield, Plaintiff/Appellant, v. Icon Advisors, Inc. and Icon Distributors, Inc., Defendants/Appellees (Opinion, 4Cir, 20-1690 / February 24, 2022)  Noting that WDNC had concluded that the FINRA Arbitrators had demonstrated manifest disregard of the law, 4Cir immediately tackled that issue by noting that said doctrine required proof that:

(1) the disputed legal principle is clearly defined and is not subject to reasonable debate; and (2) the arbitrator refused to apply that legal principle.

at Page 5 of the 4Cir Opinion

Second-Guessing Games

In considering ICON's assertion that North Carolina is an "at-will employment state," and that an assertion of wrongful termination without just cause would not be countenanced by that state's courts, 4Cir notes that:

The problem for ICON is that Warfield has cited cases holding that the presence of an arbitrability clause governing an employment dispute implies for-cause termination protections, notwithstanding a state law at-will doctrine to the contrary. Thus, the Eighth Circuit has held: 

Even accepting that Kansas is an employment-at-will state . . . PaineWebber's relationship with Agron under the oversight of the NASD [FINRA's predecessor] contemplated the use of the arbitration procedure as a means of settling employment-related disputes. This process necessarily alters the employment relationship from at-will to something else . . . . Accordingly, the arbitration panel had the power to determine whether the firing was justified. 

Agron, 49 F.3d at 352 (emphasis added); see also Liang, 653 F.2d at 312 ("Shearson's further reply that Liang's employment was terminable at will is without merit. It has been held repeatedly that an agreement to arbitrate disputes about employee discharges implies a requirement that discharges be only for 'just cause.' "). 

We express no opinion on the persuasiveness of Agron and Liang; the point is that they exist, and Warfield presented them to the arbitrators. ICON has not cited, either to the arbitrators or to us, any North Carolina case rejecting the specific proposition that the arbitrability of an employment relationship implies for-cause protections. We have previously explained that in 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. . . .

at Pages 6 - 7 of the 4Cir Opinion

Manifest Disregard of the Law -- The Emphasis Is On DISREGARD

As the 4Cir framed the issue, it was not whether a North Carolina court would enforce the sanctity of employment-at-will against a challenge citing wrong termination without just cause, but, in contradistinction, whether the arbitrators had refused to follow the law -- which entails proof that arbitrators had knowingly rejected what they knew was something akin to controlling precedent. In a sense, 4Cir offers a shrug and some consolation that even if judges would have ruled that Warfield's termination was covered under the ambit of terminable-at-will, the issue on appeal with whether a panel of arbitrators were aware of the law and notwithstanding that knowledge, ruled contrary to what they knew was the law. 

A Heavy Burden Not Met

What did the FINRA arbitrators know about the state of the law? On what precedent did they or did they not base their rationale and ensuing Award? 4Cir examined the record and looked for testimony, exhibits, arguments as to the established law in North Carolina. If ICON had presented the law pertaining to the doctrine of "employment at will in North Carolina" to the FINRA arbitrators and provided conclusive examples of precedent enunciating the absolute, non-fuzzy, state of the law, that may have proven persuasive on appeal; but, that wasn't in the record before the 4Cir. That lack of presentation by ICON offered 4Cir a hook to hang its hat on:

Moreover, the award contained no explanation of how the arbitrators determined that Warfield could bring a claim for wrongful termination without just cause. As ICON acknowledged, the parties could have requested an explained decision from the arbitrators but apparently did not do so. Oral Argument at 34:37-35:27, Warfield v. ICON Advisers, Inc. (4th Cir. Jan. 26, 2022) (No. 20-1690),; see also FINRA Rule 13904(g). 

Of course, "arbitrators are not required to explain their reasoning." Wachovia Secs., LLC, 671 F.3d at 481. But when arbitrators do not provide any explanation, we cannot simply impute manifest disregard. See MCI Constructors, LLC v. City of Greensboro, 610 F.3d 849, 862 (4th Cir. 2010) ("It is well settled that arbitrators are not required to disclose the basis upon which their awards are made and courts will not look behind a lump-sum award in an attempt to analyze their reasoning." (collecting cases)). Instead, when arbitrators do not explain how they reached a given result, the party seeking vacatur "must show that it would be manifest disregard of the law to" reach that outcome by each and every conceivable route. Interactive Brokers, 969 F.3d at 444. 

ICON has not done so here. As we have explained, it would not have been manifest disregard of the law to determine that the relevant language in Raymond James is either inapplicable or dicta, nor to determine that North Carolina had not specifically rejected the Agron-Liang theory. Because the arbitrators had these routes available and we do not know that they did not take them, ICON has not met its exceedingly heavy burden of establishing that the arbitrators manifestly disregarded the law.

at Pages 12 - 13 of the 4Cir Opinion

Sky High Standard of Judicial Review

In reversing WDNC's Order, the 4Cir concluded that:

In this case, as in almost all manifest disregard cases, the sky-high standard of judicial review is the beginning and the end of our analysis. Neither North Carolina law nor our decision in Raymond James established "binding precedent requiring a contrary result" from the outcome that the arbitrators reached. Jones, 792 F.3d at 403. And even if there were such a binding precedent, ICON has not met its heavy burden of showing that the arbitrators knew of and "refused to heed" that precedent. . . .

at Page 13 of the 4Cir Opinion

May 2022: WDNC Orders Confirmation of FINRA Award

Following the 4Cir's reversal of its June 2020 Order, WDNC confirmed without opposition the FINRA Arbitration Award and, accordingly, entered judgment in the amount of $1,186,975.00 plus interest and directed the expunction of the Termination Explanation in Section 3 of Warfield's Form U5. James Warfield, Plaintiff, v. Icon Advisors, Inc. and Icon Distributors, Inc., Defendants (Order, WDNC, 20-CV-195/ May 4, 2022)

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