Staffing Agency and Client Company Could Both Enforce Arbitration Agreement


By Joanne Deschenaux February 12, 2019

A staffing agency and the business to which two workers were assigned could enforce an arbitration agreement between the agency and workers, a California appellate court ruled.

The workers sued the client company, alleging that it failed to pay minimum wage or overtime, provide meal and rest periods or accurate wage statements, and promptly pay wages on termination. But they did not name the staffing agency as a defendant in their lawsuit.

The client company then filed suit against the staffing agency, claiming that it was the workers' actual employer and therefore responsible for the labor law violations the employees were alleging. The staffing agency leases its employees to other businesses temporarily and is responsible for paying wages for any work performed and issuing wage statements.

[SHRM members-only toolkitComplying with California Wage Payment and Hours of Work Laws]

The workers had signed an agreement with the staffing agency stating that they would use binding arbitration to settle all employment disputes with the staffing agency and the client company.

Both companies moved to halt the litigation and force the employees to arbitrate their claims. The workers argued that the staffing agency could not compel arbitration because it was not named as a defendant in the workers' complaint and that the client company could not compel arbitration because it had not signed the arbitration agreement. The trial court denied the companies' motion to compel, and they appealed.

The appeals court found that the staffing agency and the client company were co-employers that could seek to enforce the arbitration agreement, even though the client had not signed it.

Equal Authority as Co-Employers

The court first noted that the workers clearly agreed to arbitrate all workplace disputes with the staffing agency and that the dispute arose entirely from the workers' employment with the agency. Had they not been hired by the agency, the court said, they would not have been assigned to the worksite.

The agency would be denied the benefit of its arbitration agreement if it was forced to litigate a dispute arising from the workers' employment, the court said.

As to the client company, the court stated that, generally, only a party to an arbitration agreement can invoke it. However, the agreement required the workers to arbitrate any dispute with the "temporary employment agency" and the "worksite employer," the court noted.

Furthermore, the applicable California wage order defines an employer as anyone "who directly or indirectly, or through an agent or any other person, employs or exercises control over the wages, hours, or working conditions of any person." This definition of an employer, the court said, applies to "situations in which multiple entities control different aspects of the employment relationship," such as where one entity (the temporary employment agency) hires and pays a worker, and another entity (the client company) supervises the work.

In this case, the staffing agency hired the workers, assigned them to the worksite temporarily, paid them and issued their wage statements. The client company supervised their work and reported their hours to the agency.

Therefore, the court said, the two companies were co-employers with equal obligations to comply with state laws governing wages, meals and rest breaks. Either or both had the authority to compel the workers to arbitrate the claims arising from their employment. Thus, the appeals court reversed the trial court's decision not to compel arbitration.

Vasquez v. San Miguel Produce Inc., Calif. Ct. App., No. B287696 (Jan. 30, 2019).

Professional Pointer: The fact that a company finds its workers through staffing agencies, which hire and pay the workers, does not absolve the company of any alleged labor violations. As this case shows, the client company may be treated as a joint employer with the staffing agency.

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


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