California Court of Appeal Creates Split in Authority Over Scope of Settlement Agreements With Staffing Agencies

Payne & Fears

On February 6, 2020, in a 2-1 decision, the California Court of Appeal (Fourth District, Division Two) held that an employee's settlement agreement with a staffing agency on a wage-and-hour claim does not necessarily preclude the employee from later suing the staffing agency's client, for whom the employee performed services, on the exact same claims.

Thursday's decision, Grande v. Eisenhower Medical Center, Nos. E068730, E068751, is directly at odds with a 2018 decision from a different district of the California Court of Appeal (Second District, Division Two), Castillo v. Glenair, Inc., 23 Cal. App. 5th 262 (2018), which stated clearly in its opening lines: "In a joint employer arrangement, can a class of workers bring a lawsuit against a staffing company, settle that lawsuit, and then bring identical claims against the company where they had been placed to work. We answer no." The split between Grande and Castillo may lead to resolution by the California Supreme Court. In the meantime, the lower courts are free to follow either Grande or Castillo.

The Facts

FlexCare, LLC, a temporary staffing agency, assigned Lynn Grande to work as a nurse at Eisenhower Medical Center. Grande worked at Eisenhower for just eight days. After her assignment at Eisenhower ended, Grande became a named plaintiff in a class-action lawsuit against FlexCare brought on behalf of FlexCare employees assigned to hospitals throughout California. The case alleged standard wage and hour claims, including unpaid overtime and meal and rest break claims. FlexCare settled with the class, and Grande executed a release of claims. The release included standard language releasing the named defendant's subsidiaries, affiliates, divisions, parent companies, etc. It did not, however, expressly release Eisenhower or the category of FlexCare's clients.

Grande then turned around and sued Eisenhower in a separate class action, based on the same labor law violations, but on behalf of all nurses of any staffing agency employed and assigned to work at Eisenhower. After Eisenhower demanded indemnification from FlexCare, FlexCare intervened in the Eisenhower class action, arguing (1) that the judgment in the FlexCare class action precluded Grande's claims against Eisenhower on res judicata grounds, and (2) that Eisenhower was a released party under the FlexCare settlement agreement. The trial court ruled against FlexCare and Eisenhower on both grounds, and FlexCare appealed. 

Court of Appeal's Decision

The court of appeal affirmed. First, the court held that the doctrine of res judicata did not bar Grande's claims against Eisenhower because Eisenhower and FlexCare were not in "privity." The fact that FlexCare and Eisenhower were alleged to be jointly and severally liable and joint employers, and that FlexCare was required to indemnify Eisenhower, was not enough to satisfy the privity requirements of res judicata. On this point, the court of appeal parted ways with Castillo, which had held that the staffing agency and client, in that case, were in privity.

Second, and of most practical importance, the court of appeal held that Eisenhower was not a released party under the FlexCare settlement agreement. The court read the release language carefully, and noted (1) that Eisenhower was not identified as a released party and (2) that the agreement did not include language identifying "clients, joint employers, joint obligors, or other similar language" of FlexCare within the long list of categories of people and entities who fell within the definition of "Released Parties." The fact that the release included "related and affiliated companies" was insufficient to cover Eisenhower. The court explained that "[i]f the settlement defined 'Released Party' by naming Eisenhower, as it named FlexCare and several other individual parties, we would have to conclude that Grande had settled her claims against the hospital."

On this second point, the court of appeal again parted ways with Castillo. In Castillo, the court of appeal held that the client was an "agent" of the staffing agency, and therefore it fell within the scope of the release. The Grande court declined to find an agency relationship between FlexCare and Eisenhower.

One justice in Grande dissented, explaining in a short separate opinion that he would have followed Castillo.

What Employers Should Know

This case is an important reminder to exercise care in drafting settlement agreements, particularly the scope of the release. In complex cases involving multiple entities, staffing agencies, joint employers, or potential indemnitees, the release should expressly name each and every released entity. Do not assume that the boilerplate list of successors, predecessors, assigns, etc. will be sufficient.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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