Workers Who Settled Staffing Agency Claims Can’t Sue Client

By Joanne Deschenaux, J.D. May 4, 2018
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​Workers employed and paid by a staffing agency to work at a client company could not bring wage and hour claims against the client after they reached a settlement with the staffing service regarding the same claims, the California Court of Appeals ruled. The settlement agreement blocked the second suit, the court said.

The plaintiffs were employed and paid by a temporary staffing company to perform work at a client site. The client recorded, reviewed and reported the plaintiffs' time records to the agency so that the plaintiffs could be paid.

[SHRM members-only toolkit: Complying with California Wage Payment and Hours of Work Laws]

The plaintiffs filed suit against the client company for unpaid minimum wages, unpaid overtime wages, and meal- and rest-break violations. While that suit was pending, a separate class action that had been brought against the staffing agency resulted in a final, court-approved settlement agreement. The settlement agreement contained a broad release, barring settlement class members from asserting wage and hour claims against the staffing agency. The plaintiffs were members of the settlement class.

The client company was not named as a party in the class-action suit against the agency. However, the plaintiffs' claims against the client raised the same claims, for the same work done, covering the same time period as the claims asserted in the action brought against the staffing agency.

The trial court dismissed the claims against the client, and the plaintiffs appealed.

Res Judicata

Under the legal doctrine known as "res judicata," a matter already settled in court cannot be raised again in another proceeding. For the doctrine to apply:

  • The first decision must be final.
  • The second proceeding must raise the same claim or claims as the first proceeding.
  • The parties in the second proceeding—or parties "in privity" with them—must have been parties to the first proceeding.

The trial court dismissed the plaintiffs' lawsuit against the client company after ruling that it was barred by res judicata because of the settlement of the earlier class action against the staffing agency. The appellate court affirmed the dismissal of the claims.

A court-approved settlement is a final decision, the court first noted, and the plaintiffs' lawsuit raised the same wage and hour claims settled in the class-action suit brought against the staffing agency.

But the client was not a named party to the first lawsuit. So, for res judicata to apply, the agency must have been "in privity" with the client, the court said.

The court went on to note that privity requires the sharing of "an identity or community of interest," with "adequate representation" of that interest in the first suit, and circumstances such that the nonparty "should reasonably have expected to be bound" by the first suit.

The court then found the client and the staffing agency to be in privity because they were involved in tracking and paying the plaintiffs' wages. The client was authorized by the agency to record, review and transmit time records. The staffing agency paid the plaintiffs based on those time records. And, through the settlement, the plaintiffs were compensated for any errors made in paying their wages.

The court concluded, with respect to the plaintiffs' wage and hour claims, that the interests of the client and the staffing agency were "so intertwined" that the settlement barred any further proceedings.

Castillo v. Glenair Inc., Calif. Ct. App., No. B278239 (April 16, 2018).

Professional Pointer: Although the issues raised here may seem quite complicated and legalistic ("res judicata" and "privity"), this decision has everyday practical ramifications for staffing agencies and companies that use employees provided by staffing agencies: Under certain circumstances, courts may treat the two as inextricably linked for purposes of employment-related lawsuits. It is therefore important that staffing companies and their clients work together to comply with applicable employment laws.

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

 

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