Nearly four years ago, the U.S. Supreme Court held that employers can enforce arbitration agreements that waive an employee’s right to joining a class action lawsuit. Since then, many companies have avoided what would be costly class action lawsuits, particularly in the wage and hour context, by requiring individual arbitration with employees.

Despite this, there was often a gap for joint employers, specifically those companies that use staffing agencies to perform some type of labor. For instance, oil and gas companies may use vendors or staffing companies to provide labor on an oil rig. Or, a company may contract with a janitorial services provider to clean its offices. In those instances, the staffing companies would have the direct relationship with the workers. As staffing companies increasingly used arbitration agreements with class action waivers, it became increasingly difficult for plaintiffs to file to class action lawsuits. To get around this, more plaintiffs were suing the companies that used the staffing agencies and did not have arbitration agreements with the workers, arguing that they were either a direct employer or joint employer. Applying Oklahoma law, a federal court of appeals recently restricted, if not completely foreclosed, this increasingly common litigation tactic by plaintiff lawyers. 

The case: Reeves v. Enterprise Products Partners, LP

Darrell Reeves, James King, and Todd Orcutt worked as pipeline welding inspectors. They were employed by two staffing companies. In turn, those staffing companies contracted with Enterprise Products Partners to provide welding inspectors on their pipelines. The plaintiffs were paid directly by the staffing companies and had arbitration agreements with those companies that required them to arbitrate any claims related to their employment; however, Enterprise, the pipeline operator, was not a named party to the arbitration agreements. 

The plaintiffs filed a class action case against Enterprise, arguing that legally they were Enterprise employees and entitled to unpaid overtime. Enterprise responded by filing a motion to compel arbitration, arguing that the plaintiffs’ arbitration agreements with the staffing company prohibited them from filing or joining a class action case. 

The trial court held that because Enterprise was not a signatory to the arbitration agreements, it could not enforce them. The appeals court disagreed. It reversed the trial court—essentially mitigating the costly risk of Enterprise fighting a larger class of unpaid wage claims.  In a detailed analysis of Oklahoma law, the appeals court essentially held that the plaintiffs’ claims against Enterprise were so intertwined with their employment for the staffing agencies that they could not avoid their arbitration obligations.  

The lesson

Arbitration agreements are not one-size-fits-all.  This may be particularly true if a company uses workers provided by a staffing company. However, as part of any contract negotiations, any company that uses contract labor – whether it’s for workers in the oil patch, skilled nursing, cleaning services, or day laborers – would be well advised to ask the staffing agency to provide copies of any arbitration agreements it may have with its workers. In some cases, it may be appropriate for the company to require the staffing agency to have arbitration agreements with class waivers as a condition of doing business with them. 

Conversely, staffing companies may be well served to implement or review their arbitration agreements to make it clear that workers have to go to individual arbitration for any lawsuits they may file against the staffing company’s clients. In short, a small amount of time reviewing these agreements now can avoid a lot of risk of a costly class or collective action later.