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No "manifest disregard" as to class "opt out" provision
February 04, 2008 by Ross Runkel at LawMemo

An arbitrator's application of AAA's "opt-out" class certification provision (rather than FLSA's "opt-in" provision) didn't constitute "manifest disregard" of the law, says the 4th Circuit.

Long John Silver's v. Cole (4th Cir 01/29/2008).

Cole and her co-workers initiated class-wide arbitration proceedings against their employer pursuant to an arbitration agreement. The employees prevailed on their Fair Labor Standards Act (FLSA) claims, and the employer petitioned the trial court for an order vacating the arbitration award. The petition was denied, and the 4th Circuit affirmed.

The arbitration agreement provided that "[a]ny arbitration will be administered by the American Arbitration Association under its commercial arbitration rules...."

The American Arbitration Association's (AAA's) Supplementary Rules for Class Arbitrations provide for "opt-out" class certification.

However, the FLSA provides for "opt-in" class certification (29 USC Section 216(b)).

The arbitrator applied the AAA's opt-out provision.

The court concluded that the arbitrator's decision to apply that provision did not constitute a "manifest disregard" of applicable law justifying vacatur of the arbitration award.

The employer argued that the FLSA's opt-in provision constitutes a substantive right not waivable under an arbitration (or any other) agreement. However, no court has held that the FLSA's opt-in provision creates a substantive, non-waivable right. The court thus concluded "[i]t is far from clear that the 'opt-in' aspect of the Section 16(b) [opt-in] provision is such a nonwaivable substantive right." Disregard of a legal principle cannot constitute "manifest disregard" unless the principle is "clearly defined and not subject to reasonable debate." Thus, the arbitrator's decision on this issue did not constitute "manifest disregard."

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