Staffing Company Employee Must Arbitrate Dispute with Business Where He Was Assigned to Work

By Joanne Deschenaux, J.D. May 25, 2017
Staffing Company Employee Must Arbitrate Dispute with Business Where He Was Assigned to Work

​A worker was required to arbitrate a wage and hour dispute with an employer that hired him through a temporary staffing agency, even though the employer was not party to an arbitration agreement between the staffing agency and the employee, the California Court of Appeal ruled. 

Temporary staffing company Real Time Staffing Services LLC hired Narcisco Garcia in 2011 as an hourly employee. Real Time then assigned Garcia to work for Pexco, a manufacturer of specialty plastics. As part of the hiring process with Real Time, Garcia filled out an employment application that included an arbitration agreement between Garcia and Real Time. Pexco is not a party to the arbitration agreement.

The arbitration agreement provided that "any dispute" Real Time and Garcia could not resolve informally would be determined by binding arbitration. The arbitration agreement also defined disputes subject to arbitration as including, but not limited to, those regarding wages, vacation pay, sick time pay and overtime pay.

In 2014, Garcia filed suit against Real Time and Pexco for violations of the California Labor Code and for unfair business practices pertaining to payment of wages during his assignment with Pexco. Real Time and Pexco moved to compel individual arbitration of Garcia's claims. The trial court granted the motion to compel arbitration, and Garcia appealed as to Pexco, asking that he not be compelled to arbitrate with Pexco. Garcia did not claim that the arbitration agreement was invalid or unenforceable and admitted that his claims must be arbitrated with Real Time.

Exception to General Rule

The court first noted that the general rule is that "one must be a party to an arbitration agreement to be bound by it or invoke it" but that courts recognize exceptions to this general rule. One exception is that a nonparty may be allowed to enforce an arbitration agreement when the claims against it are "based on the same facts and are inherently inseparable'" from the arbitrable claims against a party who has signed the agreement.

Garcia argued that his claims against Pexco were not sufficiently "intertwined" with the underlying arbitration agreement because he was not seeking to enforce the terms and conditions of his employment contract but was only asserting claims based on the violations of the Labor Code. However, the court said, a claim "arising out of" a contract does not itself need to be a contractual claim.

It has long been the rule in California, the court continued, that a broadly worded arbitration clause, such as the one in this case, may extend to statutory claims. Furthermore, the court said, there is nothing in California law prohibiting a nonparty from compelling arbitration of claims merely because those claims allege statutory violations.

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"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.  It would be unfair for the arbitration about Garcia's assignment with Pexco to proceed with Real Time, while preventing Pexco from participating, the court concluded. The court affirmed the trial court's order compelling arbitration of the claims against both Real Time and Pexco.

Garcia v. Pexco LLC, Calif. Ct. App., No. G052872 (May 16, 2017).

Professional Pointer: Barring Pexco from participating in the arbitration in this case would have been especially unfair in light of a California law, effective Jan. 1, 2015, that requires employers  

that get workers through a temporary staffing agency to share in any liability for violations of wage and hour laws. The law further provides that the temporary employer can seek indemnity from the staffing agency for violations.

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


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