Long John Silver's Says Arrrbitrator Disregarrrrded the Law

The Fourth Circuit left Long John Silver's reachin' for its noggin of rum on January 28 when it ruled that an arbitrator properly allowed three former restaurant managers and managerial assistants to proceed with a Rule 23-style opt-out class arbitration of their Fair Labor Standards Act claims. Long John Silver's Rests. Inc. v. Cole, No. 06-1259 (4th Cir., Jan. 28, 2008) (PDF). (And yes, I'm aware that Talk Like A Pirate Day is not until September 19, but I couldn't resist).

Three former LJS employees alleged that the restaurant violated the FLSA by subjecting them to payroll deductions and salary givebacks to cover losses in restaurant operations. All three had signed an arbitration agreement requiring them arbitrate the dispute under the commercial rules of the American Arbitration Association. Although the FLSA permits only opt-in "collective actions," the AAA rules permit opt-out class actions.

The employees sought class certification under the AAA rules, and the arbitrator ruled that the three employees could serve as representative plaintiffs in an opt-out class arbitration on behalf of current and former restaurant managers and managerial assistants. LJS sued in federal court, and the U.S. Department of Labor filed an amicus brief supporting its argument that the FLSA's opt-in requirement (29 U.S.C. § 216(b)) is nonwaivable. Both the district court and the Fourth Circuit disagreed. In a 3-0 decision, the Fourth Circuit held that "[b]ecause there is a debatable contention that the FLSA's § 16(b) provision did not explicitly overrule the 'opt-out' feature of the arbitration agreement, the arbitrator did not ignore the FLSA or any other applicable legal principles when he certified an 'opt-out' class."

Arrrgh.