Staley v. Four Seasons Hotels and Resorts

Background

Selena Staley, Vivian Holmes, and Olive Ivey worked for more than a decade at the Four Seasons Hotel. The hotel was owned by Hotel 57 Services, LLC; the plaintiffs also alleged that Ty Warner Hotels and Resorts, LLC, and Ty Warner owned or operated it. In 2020, during the COVID-19 pandemic, the defendants placed the plaintiffs and other employees on indefinite furlough and closed the hotel. According to the opinion, the hotel had not reopened and the plaintiffs had not returned to work when the opinion was written.

The plaintiffs brought claims on behalf of themselves and similarly situated employees. They alleged that furloughs lasting more than six months with no definite end amounted to permanent layoffs, entitling them to separation pay and notice of termination under the federal and New York Worker Adjustment and Retraining Notification Acts. The defendants responded that the furloughs were temporary and that, even if the plaintiffs had been permanently laid off, the defendants had satisfied their obligations by providing furlough notice.

Motions and governing agreement

The defendants moved to compel arbitration under the parties’ employment agreement, called the EmPact Agreement. The agreement generally designated the Complaint, Arbitration & Review for Employees, or CARE, procedure as the exclusive process for resolving employment disputes. It required arbitration of termination-related disputes except disputes arising from a permanent layoff. The defendants argued that the plaintiffs had experienced temporary furloughs, not permanent layoffs, so their claims had to be arbitrated.

The defendants separately moved to strike the class allegations under Federal Rule of Civil Procedure 12(f). They relied on a provision stating that employees who did not opt out of CARE waived the right to bring claims as part of a class or collective action in court or in class arbitration. The parties agreed that the plaintiffs had not opted out of CARE.

Motion to compel arbitration

The court denied the motion to compel arbitration. It explained that an arbitration order should not be denied unless the arbitration clause cannot reasonably be interpreted to cover the dispute, and that the party opposing arbitration generally bears the burden of showing that the claims are outside the clause’s scope.

Even under that demanding standard, the court found that the arbitration provision was not reasonably susceptible to covering the plaintiffs’ claims. The EmPact Agreement stated that “permanent layoff” was to be defined by law. The court noted that the federal and New York Worker Adjustment and Retraining Notification Acts treat a layoff lasting more than six months as a permanent employment loss or permanent layoff. It also relied on the ordinary meaning of permanent layoff and the allegations that the furlough had lasted more than three years without a performance-related reason.

The court rejected the defendants’ argument that a permanent layoff existed only when the hotel designated it as such and offered separation pay that an employee accepted. The court read the agreement as making separation pay a consequence of a permanent layoff, not the event that creates one. It also reasoned that allowing the hotel to control the designation by withholding or offering separation pay could allow it to avoid statutory and contractual obligations.

The court emphasized that its ruling did not finally determine that the plaintiffs had met all requirements for their claims. It stated that discovery might reveal an exception affecting the defendants’ legal obligations. Nonetheless, based on the allegations, the court concluded that the plaintiffs’ claims were related to a permanent layoff and therefore exempt from mandatory arbitration. The motion to compel arbitration was denied.

Motion to strike class allegations

The court also denied the defendants’ motion to strike the class allegations, without prejudice to raising the issue again at the class-certification stage. The court noted that motions to strike class allegations are generally disfavored because briefing and discovery during class certification may make the issue easier and more accurate to decide. It applied a somewhat more relaxed standard here because the parties had already completed most of the discovery relevant to the contractual interpretation issue.

The court held that the defendants had to show clearly and convincingly that the waiver, read together with the rest of the agreement, barred the plaintiffs from pursuing class claims. The court rejected the defendants’ broad reading of the waiver. It interpreted the waiver as applying to claims that employees were required to submit to CARE, not to claims—such as claims based on a permanent layoff—that the agreement exempted from arbitration altogether.

The court relied on the agreement’s structure and related provisions. The general waiver of the right to have a case decided in court used language nearly identical to the class-action waiver. Reading both provisions as broadly as the defendants proposed would prevent employees from bringing permanent-layoff claims in court, even though other provisions specifically exempted those claims from mediation and arbitration and stated that employees could not seek arbitration of them. The court also applied contract-interpretation principles favoring a reading that gives effect to the agreement as a whole and construes ambiguity against the drafter.

Disposition

The court denied the defendants’ motion to compel arbitration. It denied the defendants’ motion to strike the class allegations without prejudice to renewing it at the class-certification stage. The court lifted the previously imposed stay, directed the parties to jointly contact chambers by July 10, 2023, to establish new case-management dates, and directed the Clerk to close the docket entries for the two motions. Judge Jed S. Rakoff issued the opinion and order.