In a recent decision, the California Court of Appeal, Fourth Appellate District, has significantly restricted the ability of non-signatory employers to enforce arbitration agreements with temporary workers. The case of Soltero v. Precise Distribution, Inc., Case No. CIVSB2203669 (May 18, 2024), highlights the court’s stance on third-party arbitration enforcement, particularly in cases involving staffing agencies.
Nelida Soltero, employed by Real Time, a staffing agency, filed a class action lawsuit against Precise Distribution for wage and hour violations. Despite Soltero signing an arbitration agreement with Real Time, Precise, as a non-signatory to that agreement, attempted to compel arbitration. The court ruled against Precise, emphasizing key points:
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Equitable Estoppel: The court dismissed Precise’s argument that it could compel arbitration based on equitable estoppel, stating that Soltero’s claims against Precise did not rely on any terms within her agreement with Real Time. The court distinguished this case from previous decisions where such estoppel was permitted, asserting that the plaintiff’s claims must directly stem from the agreement containing the arbitration clause.
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Third-Party Beneficiary: Precise also failed to establish itself as a third-party beneficiary to Soltero’s agreement with Real Time. The court noted that the agreement explicitly excluded clients or joint employers of Real Time, such as Precise, from its coverage. This finding underlined the specificity required for a non-signatory to claim beneficiary status under such agreements.
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Agency: Lastly, the court rejected Precise’s assertion that it could enforce the arbitration agreement as an agent of Real Time. Without evidence demonstrating an agency relationship between Real Time and Precise, the court found no basis to uphold this argument.
DC Federal Employment Lawyers Note: This ruling has crucial implications for employers. Following the Soltero decision, employers relying on temporary staffing agencies should carefully evaluate the scope and terms of arbitration agreements used by these agencies. It is essential to ensure that such agreements encompass potential non-signatory parties, like client employers, to avoid the pitfalls encountered in this case.
DC Federal Employment Lawyers further stress that this ruling underscores the importance of clarity and specificity in drafting arbitration agreements within the context of temporary employment arrangements. Businesses must consider these insights to mitigate legal risks and ensure compliance with arbitration requirements in future staffing arrangements.