Arbitration agreement does not compel the parties to arbitration

The federal courts maintain strict allegiance to the Federal Arbitration Act, which compels the parties to arbitrate their claims when the parties agree to arbitrate their disputes. Motions to compel arbitration are routinely granted, but that is not always the case. This is one of those exceptions. 

The case is Staley v. Hotel 57 Services, a summary order issued on March 13. Bear in mind that many plaintiffs do not like arbitration, which offers less discovery than litigation, no jury, and the success rate is not comparable to state and federal court. But if the employee signs an arbitration agreement (usually at the start of their employment, when the employee has no real incentive to make things difficult in this regard and may have no bargaining power in any event), the court will uphold that agreement.

 

The district court denied the motion to compel in this case brought under the WARN Act  (which requires the employer to give employees sufficient notice of a plant closing), but the employer wanted arbitration based on the arbitration agreement. 

Issue number 1: while the courts prefer to determine who has authority to refer the case to arbitration, the arbitration agreement can delegate that issue to the arbitrator. The employer said the parties agreed to place this issue before the arbitrator, but the arbitration agreement is vague on this point as it does not clearly state who would make this decision, and it was not enough for the agreement to incorporate rules from the American Arbitration Agreement, which says the arbitrator makes this decision. This issue was therefore best left to the district court, not the arbitrator. 

Issue number 2: while the arbitration agreement says the employees will submit their complaints to an arbitrator, including issues surrounding the termination of employment bu not a permanent layoff, "a claim  regarding a permanent layoff is not subject to arbitration" in this case. Another provision of the agreement says the employee "may not seek . . . arbitration of a permanent lay-off." Since plaintiffs' claims relate to a permanent layoff in that they were placed on an indefinite furlough in March 2020 and the Hotel did not bring them back to work since then, the Court of Appeals (Lohier, Sack and Perez) presumes this is a permanent layoff case.