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NONSIGNATORY JOINT EMPLOYERS RECEIVE BENEFITS OF ARBITRATION AGREEMENT

A recent decision from the California Court of Appeal provides considerable protection to certain joint employers seeking to arbitrate claims.  In Garcia v. Pexco, LLC, the Court held that a company hiring temporary workers from a staffing agency can enforce the arbitration agreement entered into between the staffing agency and its workers, even if the company did not sign the arbitration agreement itself.

Garcia v. Pexco, LLC

In Garcia, the plaintiff, Narciso Garcia, sued a staffing agency for alleged wage and hour violations.  He included Pexco LLC, the company that had hired him through the staffing agency, as joint defendant, alleging that Pexco was also liable as a joint employer.  The trial court compelled arbitration for all parties, including Pexco, according to an arbitration agreement signed by Garcia and the staffing agency. Garcia appealed this decision on the grounds that Pexco could not invoke an arbitration agreement it had not signed.

The Court of Appeal disagreed, stating that two exceptions – equitable estoppel and agency – warranted application of the agreement to Pexco.  First, under the doctrine of equitable estoppel, it would be unfair for Garcia to allege that Pexco was as a joint employer  – and therefore liable for the staffing agency’s wage and hour violations – while excluding the company from applicable employment agreements.  Second, under the agency exception, the Court held that Garcia’s allegations that Pexco was an agent of the staffing agency did not stop at the offense; rather, as an agent, Pexco could enforce the arbitration agreement as an agent of the staffing agency that had signed it.

Implications for Employers

The Garcia decision is especially important for employers who rely on temporary staffing agencies to meet their business needs.  Although limited to those instances where the plaintiff’s claims against both defendants are “inherently inseparable” and “intimately founded in … the underlying contract obligations,” the decision, when applicable, provides employers significant protection against claims brought by temporary employees.  Employers should review the staffing companies’ employment agreements to determine the protections such agreements may afford.

For more information, please contact your employment attorney at the Mitzel Group, LLP.