Why it matters

Holding that an employee was equitably estopped from denying a defendant’s right to arbitrate an employment dispute, a California appellate court affirmed a trial court’s grant of a motion to compel arbitration. Real Time Staffing Services hired Narciso Garcia as an hourly employee. As part of the hiring process, Garcia filled out an employment application that included an arbitration agreement. Garcia was then assigned to work for Pexco LLC. When Garcia later sued both Real Time and Pexco for violations of the state’s Labor Code, the defendants moved to compel arbitration. Garcia objected, arguing that Pexco was not a signatory to the arbitration agreement. A trial court granted the motion to compel, and the appellate panel affirmed. Each cause of action in the complaint was alleged against “All Defendants,” with no distinction between Real Time and Pexco, the court said, leaving Garcia’s claims intertwined between the defendants. “On these facts, it is inequitable for the arbitration of Garcia’s assignment to proceed with Real Time, while preventing Pexco from participating,” the court wrote.

Detailed discussion

Narciso Garcia was hired by Real Time Staffing Services in 2011 as an hourly employee. As part of the hiring process at the temporary staffing company, Garcia filled out an application that included an arbitration agreement. The agreement provided that “any dispute” between Real Time and Garcia would be determined by binding arbitration.

Garcia was assigned by Real Time to work at Pexco. In 2014, he filed suit against Real Time and Pexco, asserting violations of the Labor Code and unfair business practices pertaining to payment of wages during his stint at Pexco. Each cause of action in the complaint was alleged against “All Defendants,” with no distinction between Real Time and Pexco.

The defendants moved to compel arbitration, and a trial court granted the motion. Garcia appealed the order granting Pexco’s motion, arguing that because Pexco was a nonsignatory to the arbitration agreement, the claims against Pexco should be tried separately.

While the general rule is that one must be a party to an arbitration agreement to be bound by it or invoke it, the appellate panel determined that the equitable estoppel exception applied. “Under this exception, ‘a non-signatory defendant may invoke an arbitration clause to compel a signatory plaintiff to arbitrate its claim when the causes of action against the nonsignatory are “intimately founded in and intertwined with” the underlying contract obligations,’” the court stated. “The doctrine applies where the claims are ‘based on the same facts and are inherently inseparable’ from the arbitrable claims against signatory defendants.”

The court disagreed with Garcia’s contention that his claims were not sufficiently “intertwined” with the underlying arbitration agreement because his claims were based upon statutory violations and did not sound in contract.

“Even though Garcia’s claims are styled as Labor Code violations, the arbitration agreement applies,” the panel wrote. “Labor Code violations are clearly, and indeed expressly, included as one of the types of disputes covered by the arbitration agreement. The arbitration agreement is so clear Garcia concedes Real Time may compel arbitration of his statutory claims under the agreement. This is because Garcia’s claims fall within the ambit of the arbitration clause due to the strong policy favoring arbitration and the language of the arbitration agreement.”

Further, “all of Garcia’s claims are intimately founded in and intertwined with his employment relationship with Real Time, which is governed by the employment agreement compelling arbitration,” the court said.

“On these facts, it is inequitable for the arbitration about Garcia’s assignment with Pexco to proceed with Real Time, while preventing Pexco from participating. This is because Garcia’s claims against Pexco are rooted in his employment relationship with Real Time, and the governing arbitration agreement expressly includes statutory wage and hour claims. Garcia does not distinguish between Real Time and Pexco in any way. All of Garcia’s claims are based on the same facts alleged against Real Time. Garcia cannot attempt to link Pexco to Real Time to hold it liable for alleged wage and hour claims, while at the same time arguing the arbitration provision only applies to Real Time and not Pexco.”

Given Garcia’s allegations that Pexco and Real Time were his joint employers, the agency exception would also apply to require arbitration, the panel added. “[T]he operative complaint alleged workplace violations against Real Time and Pexco as joint employers, referred to both employers collectively as ‘defendants’ without any distinction, and alleged identical claims and conduct regarding unlawful and improper acts,” the court said.

The panel, accordingly, affirmed the motion to compel arbitration.

To read the opinion in Garcia v. Pexco, LLC, click here.