On May 16, 2017, the Court of Appeals held that a company that obtains workers from a temporary staffing agency can enforce the arbitration agreement entered into between the temporary workers and the staffing agency. See Garcia v. Pexco, LLC, No. G052872, 2017 WL 1435788 (Cal. Ct. App. Apr. 24, 2017).
The court originally issued the opinion unpublished on April 24, 2017, but it granted a publication request by the California Employment Law Council.
FACTS AND PROCEDURAL BACKGROUND
Defendant Real Time Staffing Services, LLC d/b/a Select Staffing (“Real Time”), a temporary staffing company, hired Narciso Garcia (“Garcia”) and assigned Garcia to work at Defendant Pexco, LLC (“Pexco”).
Garcia filed a class action lawsuit alleging violations of the Labor Code and unfair competition relating to payment of wages against both Real Time and Pexco, asserting they were “joint employers” and both responsible for the alleged violations.
The employment agreement between Garcia and Real Time included a broad arbitration agreement requiring arbitration of “any dispute Real Time and Garcia could not resolve informally” and “specifically defined disputes subject to arbitration as including, but not limited to, those regarding wages, vacation pay, sick time pay, overtime pay, state and federal employment laws and regulation, including but not limited to, the Fair Labor Standards Act (29 U.S.C. § 201 et seq.), including the Equal Pay Act (29 U.S.C. § 206 et seq.).” Garcia v. Pexco, LLC, No. G052872 at *1.
Both Pexco and Real Time moved to compel individual arbitration of Garcia’s claims based on the arbitration agreement Garcia signed with Real Time. Pexco was not a signatory to the arbitration agreement. The trial court granted the defendants’ petition to compel arbitration and dismissed the class claims from the lawsuit leaving only Garcia’s individual claims to be adjudicated in arbitration. Garcia conceded that he was required to arbitrate his claims against Real Time. But Garcia appealed the trial court’s order as to Pexco, arguing that, as a non-signatory to the arbitration agreement, Pexco had no right to compel arbitration with Garcia pursuant to the arbitration agreement.
THE COURT OF APPEAL’S HOLDING
The Court of Appeal affirmed the trial court’s order compelling arbitration of Garcia’s individual claims against Pexco. The court relied on two exceptions to the general rule that a non-signatory to an arbitration agreement has no standing to compel the parties to the arbitration agreement into arbitration: equitable estoppel and the so-called “agency exception.”
The court first turned to equitable estoppel. The court held that it would be unfair for Garcia to allege that Pexco was Real Time’s agent—and thus also liable for Real Time’s alleged wage and hour violations—while, at the same time, arguing that the arbitration provision exclusively applied to Real Time and not Pexco. The court further stated:
Garcia agreed to arbitrate his wage and hour claims against his employer, and Garcia alleges Pexco and Real Time were his joint employers. Because the arbitration agreement controls Garcia’s employment, he is equitably estopped from refusing to arbitrate his claims with Pexco.
As to the “agency exception,” the court held that it applies “when a plaintiff alleges a defendant acted as an agent of a party to an arbitration agreement[.]” The non-signatory party has standing to enforce the arbitration agreement.
In this case, Garcia’s “operative complaint alleged Real Time and Pexco were acting as agents of one another and every cause of action alleged identical claims against ‘All Defendants’ without any distinction.” Id. at *3. Accordingly, the agency exception applied to allow non-signatory Pexco to enforce the arbitration agreement between Garcia and Real Time.
WHAT GARCIA MEANS FOR EMPLOYERS
Many employers rely on temporary staffing agencies to meet variable employment needs. As such, this ruling affects a large number of employers doing business in California.
Garcia affirms that arbitration agreements with enforceable class action waivers remain a valuable tool for employers seeking to control their risks and avoid expensive class litigation. The Garcia decision further confirms that, even if there is no direct arbitration agreement between the temporary employee and the company the employee is placed with, the employer may be able to “piggy-back” on the staffing agency’s arbitration agreement. Employers facing a lawsuit brought by a worker from a staffing agency should determine whether an arbitration agreement exists between the worker and the staffing agency.
Employers with questions regarding the implication of the Garcia decision or the use of pre-dispute arbitration agreements may contact the authors or their usual employment counsel at AALRR.