In law school, aspiring attorneys are taught fundamental concepts related to contracts, including “agency”, “third party beneficiary”, and “equitable estoppel”, terms which relate to determining who should be subject to the terms of a contract. In Hernandez v. Meridian Management Services, LLC, the California Court of Appeals referred back to these law school basics in denying a motion to compel arbitration brought by a number of companies who were alleged to be “joint employers” of an employee, but who were not signatories to an arbitration agreement between the employee and her primary employer.
Specifically, the employee (Hernandez) was directly employed by Intelex, a medical supply distribution company, with which she signed an agreement to submit disputes to binding arbitration. Intelex allegedly shared office space with six other companies that were “jointly owned and operated.” To that end, Hernandez alleged that she was jointly employed by these six other companies, with whom she did not sign arbitration agreements. Hernandez then brought a lawsuit alleging wage and hour violations against the six companies but excluded Intelex, a move which the Court of Appeals deemed a “tactical bargain.” By leaving out Intelex from the lawsuit, both the trial court and Court of Appeals agreed that there was no basis to compel arbitration.
In rejecting the assertion that Hernandez was “equitably estopped” from proceeding with the lawsuit without including Intelex, the court pointed out that Hernandez had not acted in an inconsistent or wrongful manner. Rather, the exclusion of Intelex was a strategic maneuver to avoid just such an issue. Further, the record on appeal reflected that the six companies did not establish that they were indeed “agents” of Intelex, despite being named “joint employers.” As the court explained: “this admission [of joint employment] does not establish agency, for I may work two jobs, but that does not suggest one boss is an agent for the other boss.” Similarly, these companies were not “third party beneficiaries” of the arbitration agreement between Hernandez and Intelex, because nothing showed that the agreement was intended for the benefit of the other companies.
Significance for Employers
If you have been following this blog, it should be no surprise that California has made every effort to tighten the boundaries of employment arbitrations. This ruling, presented through a convoluted set of facts, highlights one more issue for employers to consider. Specifically, if one or more employers suffer or permit an individual to do any work for that entity, there is a presumption that an employment relationship is created, which relationship is often labelled as that of “joint” or “co-” employer. With such a relationship, a specific agreement between the parties that would impose obligations arising from that relationship (such as requiring the binding arbitration of disputes) must be issued for the benefit of each party – whether as a separate agreement for each entity or in a single agreement that specifies that other entities are intended beneficiaries of that agreement.
Keeping track of employment and what constitutes an employment relationship can be a significant pitfall for California employers. As always, it is critical to have experienced employment counsel to help navigate these issues to avoid an outcome like that in Hernandez.
