Background
The Inn of Chicago operated under a collective bargaining agreement with UNITE HERE Local 1. When Allegiant Equities purchased the hotel in March 2021, it agreed to assume the existing CBA. The property remained closed during the pandemic. In late 2022 or early 2023, when the City of Chicago requested the Inn house displaced migrants, Remo Polselli (the owner’s representative) signed a Group Sales Agreement to provide rooms. Instead of using union employees for housekeeping and food service—work typically performed by union staff—Polselli arranged for an outside staffing agency and later Social Club Management, LLC (managed by his wife) to perform these functions.
In March 2023, when a union representative visited the facility to investigate, they were told to leave and police were called. Polselli subsequently explained that an outside agency was cleaning rooms and a church was providing food service. The Union filed grievances alleging CBA violations and filed an unfair labor practice charge with the NLRB. The case proceeded to arbitration between November 2023 and January 2024.
The Court’s Holding
The Seventh Circuit affirmed the arbitrator’s award and the district court’s confirmation. The arbitrator found: (1) the Inn was operating as a “hotel” within the CBA’s scope even while housing migrants; (2) Allegiant, Elmar, and Social Club constituted a single employer substantially under Polselli’s personal control; and (3) the employers violated the CBA and NLRA by failing to use union employees, provide notice, bargain about work transfers, and by removing the union representative from the property.
The court rejected the employers’ central argument that non-signatories to the arbitration agreement (Allegiant, Polselli, and Social Club) could not be bound by the award. The employers had fully participated in arbitration with shared counsel without reserving the right to challenge arbitrability. The court also rejected challenges to the arbitrator’s authority to interpret the CBA’s definition of “employer” and determine whether the Inn remained a “hotel” under the agreement, holding these determinations drew their essence from the CBA and were within the arbitrator’s authority.
Key Takeaways
- Parties who participate fully in arbitration without explicitly reserving the right to challenge arbitrability may be bound by the award, even if they did not initially sign the arbitration agreement.
- Arbitrators have broad authority to interpret CBAs, including determining employment relationships based on substance rather than formal structure—here, finding multiple entities constituted a single employer based on unified control.
- Operating a facility for a different purpose does not remove it from CBA coverage if it continues functioning as the type of establishment covered by the agreement.
- Adverse inferences from a party’s failure to testify, when combined with other evidence, may support an arbitrator’s factual findings.
Why It Matters
This decision significantly reinforces arbitrators’ authority to look through corporate structures and formal arrangements to enforce collective bargaining agreements. Employers cannot insulate themselves from CBA obligations by creating affiliated entities, contracting out unionized work, or using intermediaries—arbitrators may determine that such arrangements constitute violations when they effectively circumvent bargaining agreement protections.
For labor relations generally, the case establishes that in the arbitration context, substance controls over form. Where an employer continues operating a unionized facility but arranges for non-union workers to perform union work, arbitrators have clear authority to find CBA violations and order compliance. This principle applies across industries and is particularly significant in hospitality and service sectors where contractors and staffing agencies are common.
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