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Tuesday, May 30, 2017

EMPLOYMENT PLAINTIFF IS EQUITABLY ESTOPPED FROM PREVENTING A NON-SIGNATORY FROM ENFORCING AN EMPLOYMENT ARBITRATION AGREEMENT

Businesses often use workers who are actually employees of staffing companies or other, similar entities, and many times those workers have agreed with the employer to address any employment claims in arbitration. This can cause potential complications if those workers file lawsuits against both entities. In a case favoring arbitrating those claims, even if they involve a non-party to the arbitration agreement, California’s Fourth Appellate District court recently reiterated the rights of such non-signatories to enforce those agreements under both equitable estoppel and agency grounds when the right facts are present.

In Garcia v. Pexco, LLC, No. G052872, 2017 Cal. App. LEXIS 443 (May 16, 2017), Narciso Garcia was hired as an hourly employee by Real Time Staffing Services, LLC in 2011 and he was then assigned to work at Pexco, LLC. The employment application Garcia filled out when he was hired by Real Time contained a broadly-worded arbitration agreement in which he agreed to arbitrate virtually every employment claim he could conceivably have against Real Time, including those arising under federal and state employment laws and regulations. Pexco was not a signatory to the agreement.

In 2014, Garcia filed a lawsuit against several defendants, including Real Time and Pexco, for violations of the California Labor Code and unfair business practices regarding the payment of wages. All the complaint’s pertinent allegations and causes of action were made against “All Defendants,” with no distinction between Real Time and Pexco. Those defendants both moved to compel arbitration, which the trial court granted and Garcia appealed.

The appeals court began its analysis by stating that even though there is a strong federal policy favoring arbitration agreements, the general rule remains that one must be a party to such an agreement to be bound by it or to enforce it. However, it noted that courts recognize certain exceptions to the general rule, including equitable estoppel. Under that principle, a non-signatory can invoke an arbitration clause to compel a signatory to arbitrate when the causes of action against the non-signatory are “intimately intertwined with” the underlying contract obligations.  Garcia argued that because his claims were statutory, they did not sound in contract and therefore could not be deemed part of the arbitration agreement. The court disagreed, noting that a claim can “arise out of” a contract without itself being a contractual claim. It stated that all Garcia’s claims were “rooted in his employment relationship with Real Time;” that the arbitration agreement expressly included statutory wage and hour claims; and that the complaint did not distinguish between Real Time and Pexco in any way. It then stated, “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 applies to Real Time and not to Pexco.” As such, it determined that Garcia was equitably estopped from refusing to arbitrate his claims against Pexco and affirmed the trial court’s ruling.

The court further noted that Pexco could also enforce the arbitration agreement under the agency exception. Under that exception, a non-signatory can enforce an arbitration agreement when a plaintiff alleges that a defendant acted as an agent to a party to the agreement. The court determined that because Garcia had alleged in the complaint that Real Time and Pexco were “joint employers” and alleged identical conduct by both parties without distinction, they were agents of one another in their dealings with Garcia and Pexco could therefore enforce the agreement under the agency exception.

Companies that use workers who are actually employed by another entity, should, in the event of a lawsuit based on employment claims, determine whether those claims are subject to an arbitration agreement and, if so, seek to enforce it as a non-signatory under an exception to the general rule.