January 2022 | Former Employers Cannot Compel Arbitration Based on Business Relationship with Job Applicant’s Prospective Employer
A recent decision from the California Court of Appeal discusses the effect of an arbitration agreement with a prospective employer when that employer has a business relationship with the employee’s former employers. Given the agreement’s language and the circumstances, the Court concluded that the former employers cannot enforce the arbitration agreement against the employee. Garcia v. Expert Staffing West, et al., No. B307371 (Ct. App. Dec. 29, 2021).
Facts of the Case
Roseana Garcia worked for Essential Seasons as a contract-based laborer. She was placed at Cool-Pak, a company that packs produce. While she worked at Cool-Pack for Essential Seasons, Expert Staffing West provided payroll services to Essential Seasons. Essential Seasons also is a contract staffing company.
Garcia’s employment at Essential Seasons ended in 2017. In 2019, she applied for employment at Expert Staffing West but was not hired. As part of the application, she signed an arbitration agreement. It defined “the Company” as “Expert Staffing West and all related entities, including entities where employees are sent to work.” (emphasis added).
Garcia and other employees then sued Essential Seasons, Cool-Pak, and Expert Staffing West. Her claims were based on her employment at Essential Seasons and Cool-Pak, not Expert Staffing West (since she never worked there). Expert Staffing West filed a motion to compel arbitration of Garcia’s claims, to which Essential Seasons and Cool-Pack joined.
The trial court denied the motion. It found that Garcia had not been employed by Essential Seasons or Cool-Pack for more than a year at the time she signed the arbitration agreement. The arbitration agreement did not mention Essential Seasons or Cool-Pak, and she never worked for Expert Staffing West. As a result, the court said, she did not agree to arbitrate claims against Essential Seasons or Cool-Pak. The defendants appealed the trial court’s decision.
Did a Valid Arbitration Agreement between Garcia and Essential Seasons or Cool-Pak Exist?
The Court of Appeal soundly rejected the defendants’ claim that Garcia should have to arbitrate her claims against Essential Seasons and Cool-Pak. It emphasized that parties cannot be compelled to arbitrate claims when they never agreed to arbitrate them. Here, the arbitration agreement’s language made it clear that it applied to new employees of Expert Staffing West. The staffing company had Garcia sign the arbitration agreement as part of the application process. The scope of the arbitration provision did not expressly mention Garcia’s prior employment with other employers.
The Court of Appeal rejected Defendants’ various arguments for an enforceable arbitration provision. First, it rejected application of a prior case, Salgado v. Carrows Restaurant, Inc. (2019) 33 Cal.App.5th 356 (Salgado). In that case, an employee sued her employer and then, while employed, signed an arbitration agreement with that employer with broad terms. Here, Garcia was a job applicant at Expert Staffing West. She no longer worked for Essential Seasons and Cool-Pak. Her claims arose while she worked for them.
The Court of Appeal rejected the arguments that Essential Seasons and Cool-Pak are third-party beneficiaries of the arbitration agreement or that Garcia alleged that all three defendants are agents of one another. The appellate court found that the employers are not third-party beneficiaries because Garcia’s claims against Essential Seasons and Cool-Pak are not intertwined with claims against Expert Staffing West. Garcia based her lawsuit on her time with Essential Seasons and Cool-Pak. Nor did Garcia ever get a job with Expert Staffing West. The Garcia court found that Garcia’s allegation in her complaint that the defendants are agents of one another is not dispositive because it would be absurd to allow all defendants to compel arbitration simply because of an alter ego allegation in a complaint (which is a standard pleading).
The Garcia Court found that an arbitration agreement between a job applicant and a prospective employer does not affect disputes between the applicant and previous employers who have a business relationship with the prospective employer. The Garcia decision emphasizes California courts’ focus on finding mutual consent when asked to compel arbitration. Garcia’s employers should have their own express binding arbitration provisions with their employees if they wanted to compel arbitration.