Tuesday, October 7, 2008, 4:38 PM

Rough Seas for Long John Silver's

The Supreme Court has refused to review Long John Silver's Restaurants, Inc. v. Cole, a Fourth Circuit decision involving arbitration of FLSA class claims under an employment contract. In a classic example of a cruise gone awry, the saga began with the filing of a claimed class action in federal district court in Nashville - Johnson v. Long John Silver's Restaurants, Inc. Kevin Johnson, who had been an Assistant General Manager and then a General Manager for LJS in Missouri over a two-year period, alleged that the company's payroll deduction restitution policy violated the FLSA because it destroyed the "salary basis" of compensation. LJS reminded Johnson of his having signed an arbitration agreement, and the court stayed the litigation until the binding effect of the agreement could be resolved. Part of the stay was a tolling agreement under which members of the alleged class didn't have to file their own claims within the FLSA statute of limitations. The district court then entered an order compelling the parties to arbitrate, 320 F.Supp.2d 656 (M.D. Tenn. 2004), and the Sixth Circuit affirmed, 2005 Fed. Appx. 0288P (2005).

Meanwhile, plaintiffs' counsel were weighing anchor in another port. Three former management employees led by Erin Cole asserted they had been denied overtime pay and instituted an arbitration proceeding in South Carolina. The arbitrator concluded that the claimants represented a true class - that is, one in which members of the certified class were bound by the arbitrator's decision unless they opted out of the case. Arguing that the arbitrator had departed from the FLSA collective action process, under which each plaintiff has to show willingness to participate and be bound by the outcome, LJS sued in US District Court in South Carolina, asking the court to vacate the arbitrator's "class determination partial final award." The court overruled LJS's petition, 409 F.Supp.2d 682 (D.S.C. 2006), and this time the company appealed. On January 28, 2008, the Fourth Circuit rejected LJS's appeal, 514 F.3d 345, saying the arbitrator acted within the authority conferred by the American Arbitration Association's "Supplementary Rules for Class Arbitrations"; accordingly, the lower court's ruling was affirmed.

The Supreme Court's denial of review on October 6 afforded no safe harbor to LJS, which will now be governed by the arbitrator's decision on the merits, with that award controlling as to all class members. The lesson? If you want to ensure that you are free from the time, trouble and expense of litigation, and think arbitration is a preferable means of dispute resolution, consider the voyage of LJS through five courts before it winds up with a procedure it no doubt didn't think it was bargaining for. Beyond here there be dragons!


Blogger Texas Wage-Hour said...

This is a biggest procedural ruling in an FLSA related case since Sperling v. Hoffman LaRoche (an ADEA case). Hats off to Reid Estes.

October 9, 2008 at 10:25 AM  

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