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Fourth Circuit Chips Away at North Carolina's Employment At-Will Doctrine for Arbitrations

    Client Alerts
  • March 04, 2022

North Carolina is an employment at-will state meaning that employers and employees can terminate the employment relationships at any time, for any reason, or no reason at all. The state recognizes a limited exception for terminations that violate clear public policy, but in general, employees cannot claim that they were wrongfully discharged because they were terminated without good reason. Last week however, the Fourth Circuit Court of Appeals (which includes North Carolina), upheld an arbitration award against an employer based on claims that the employee was fired without good reason.

In Warfield v. ICON Advisors, Inc., the plaintiff was a securities wholesaler who claimed wrongful discharge after he was terminated, alleging that he was fired without good cause. Under FINRA rules, the matter was subject to arbitration, and the arbitrators agreed, awarding the employee damages. The employer appealed the arbitration award to federal district court, claiming that the arbitrators manifestly ignored North Carolina law, which as stated above, does not recognize such claims. The district court agreed, vacating the arbitration award, and the employee appealed this decision to the Fourth Circuit.

The Fourth Circuit agreed with the plaintiff, reinstating the arbitration award. The court said that no North Carolina court has ever held that arbitrations conducted according to state law cannot use a “good reason” basis for their decisions. In the absence of a clear disregard of such binding precedent, federal courts cannot disturb the arbitrators’ award.

This decision leaves North Carolina employees that use arbitration agreements in an unusual position. Until and unless a North Carolina state court or new legislation upholds the notion of at-will employment in the arbitration context, employees who arbitrate their claims may have broader rights of recovery than those who use the traditional court system. In other words, arbitration opens the door for employees to avoid application of the employment at-will doctrine and claim a right to recover for wrongful discharge in situations where they claim their terminations were unfair or baseless.