Monday, January 28, 2008, 4:11 PM

Fourth Circuit: Arbitrator May Certify Opt-Out FLSA Class, Desite FLSA's Opt-In Requirement

Today, in Long John Silver's v. Cole, a collective action brought in arbitration under the Fair Labor Standards Act (FLSA), the Fourth Circuit confronted the following conflict. On the one hand, the FLSA contains an "opt-in" provision: section 16(b) of the FLSA says that "[n]o employee shall be a party plaintiff to any ... [FLSA] action unless he gives his consent in writing to become a party . . . ." On the other hand, the AAA rules for class arbitrations ("AAA Class Rules"), which were incorporated into the employer's arbitration agreements with its employees, provides that arbitrators may include in a class award those persons who have not elected to "opt out" of the class.

Thus, whereas the AAA Class Rules contemplate an opt-out class, section 16(b) of the FLSA contemplates an opt-in class. One can safely predict that in most cases an opt-in class will be smaller than an opt-out class.

In today's case the arbitrator issued a class award using the opt-out mechanism in the AAA Class Rules. Thus, employees were included in the class even though they never opted in, i.e., never gave written consent to become parties, as contemplated by section 16(b).

The employer argued that the arbitrator's use of an opt-out procedure (rather than an opt-in process) constituted a manifest disregard of law -- a manifest disregard of FLSA section 16(b). The employer argued that the opt-in right is a substantive right of an employee (a substantive right not to be made a party to a FLSA-related proceeding without his consent) that is not waivable by arbitration agreement. The Secretary of Labor filed an amicus brief in support of the employer's position.

The Fourth Circuit, however, held that the arbitrator didn't manifestly disregard the law. The Court held that the employer failed to demonstrate that Congress expressly intended to preclude a waiver of the section 16(b) opt-in procedure for class arbitration of FLSA claims. The Court deemed it "far from clear" -- a "debatable contention" -- that section 16(b)'s opt-in provision is a nonwaivable substantive right. Therefore, the employer didn't discharge its "heavy burden" of showing that the arbitrator manifestly disregarded the law.

The Court observed that employees are entitled to waive their right to collective action by agreeing to mandatory arbitration. See Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20 (1991). The Court concluded that, if the right to initiate collective action can be waived, "it may be inferred that an 'opt-in' procedure relating to any such right . . . can also be waived."

Note: the Court didn't hold that the FLSA's opt-in provision cannot apply in arbitration. Rather, the Court held only that an arbitrator could conclude that parties may waive the opt-in provision by agreeing to abide by arbitration rules that provide for an out-out procedure.

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