Job Applicant's Arbitration Pact Didn't Apply to Former Employers

An arbitration agreement between a job applicant and her prospective employer did not apply to disputes between the applicant and her former employers merely because her former employers had a business relationship with her prospective employer, a California appellate court ruled. The applicant never agreed to arbitrate disputes with her former employers.

The applicant had employment agreements with her two former employers, and the employment agreements did not include an arbitration clause. After that employment ended, she applied for work with a third employer. As part of her application for that job, she agreed to submit all disputes between them to arbitration. Her job application with the third employer was rejected.

The applicant later joined an existing class action for wage and hour violations against all three employers. She based her claims on her prior employment. The two prior employers sought to force the applicant's claims into arbitration, but the court denied the employers' motion and the employers appealed.

The issue presented was whether the arbitration agreement between the applicant and her prospective employer applied to disputes arising between the applicant and her two former employers because the three employers had a business relationship.

The court concluded that it did not and affirmed the trial court's order denying arbitration of the applicant's claims.

One of the applicant's former employers provided contract-based labor services for agricultural and food-service companies. That company hired the applicant to work as a packer at the second employer, a company that labels, packs and ships produce.

During the time the applicant worked for the two employers, the third prospective employer provided payroll services to the first company. The applicant's employment with the first two companies ended in December 2017.

In 2019, the applicant applied for a job with the third company. She signed an agreement to arbitrate disputes with the company as part of the application process, but she was not hired. The agreement defined "the company" to include "all related entities, including entities where employees are sent to work."

On appeal, the two companies that had employed the applicant argued that the trial court erred when it determined that the arbitration agreement did not apply to the applicant's individual wage and hour claims.

Contract Principles Apply

An arbitration agreement is a contractual agreement. Although there is a general policy favoring arbitration, a party cannot be compelled to accept arbitration of a controversy that it has not agreed to arbitrate, the appeals court said.

The court found that the arbitration agreement signed in 2019 could not be interpreted to cover the applicant's prior employment by different employers.

The first sentence at the top of the agreement states the agreement is part of the "onboarding package." The word "onboarding" reflects that the parties intended the agreement to apply to new employees of that company, the court said.

The appellate court held that the arbitration clause between the job applicant and her prospective employer did not apply to disputes between the applicant and her former employers merely because her former employers had a business relationship with her prospective employer.

The court further concluded that the two prior employers were not third-party beneficiaries to the arbitration agreement. No evidence supported a finding that the parties intended to benefit the applicant's former employers, the court said.

The court also rejected the employers' argument that they could enforce the arbitration agreement because the companies were all agents or alter egos of one another, finding no evidence to support this claim. 

Garcia v. Expert Staffing West, Calif. Ct. App., No. B307371 (Dec. 29, 2021).

Professional Pointer: A California law originally set to take effect in 2020 would have prohibited employers from requiring workers to arbitrate state-law discrimination and labor code claims. A federal court prevented the law from taking effect initially, but a September 2021 federal appellate court decision upheld the law (Chamber of Commerce v. Bonta). This ruling is currently being challenged, and, for now, the trial court's decision enjoining enforcement of the law remains in effect. In the meantime, employers are encouraged to consult with counsel regarding their arbitration agreements.

Joanne Deschenaux, J.D., is a freelance writer in Annapolis, Md.