Ninth Circuit Upholds Arbitration For Non-Signatory Defendant

Jackson Lewis P.C.

 California law is not typically seen as amiable to compelling employees to arbitrate their claims. However, in Franklin v. Community Regional Medical Center, ___ F.3d___(9th Cir. 2021), the Ninth Circuit panel upheld a motion to compel arbitration by a non-signatory to an arbitration agreement based on California law.

Isabelle Franklin was employed by a staffing agency and assigned to Community Regional Medical Center’s hospital (CRMC). Franklin signed a mediation and arbitration policy and agreement that required Franklin and the staffing agency to arbitrate “all disputes that may arise out of or be related to [Franklin’s] employment, including but not limited to the termination of [Franklin’s] employment and compensation.” Franklin also signed an assignment contract with the staffing agency when she was assigned to CRMC. The assignment contract set forth the terms of her assignment including her hourly wage, overtime rate, length of shifts, and business expense reimbursement. The assignment agreement also included an arbitration clause. CRMC and Franklin had no contracts between them.

Franklin worked at CRMC for two months and then brought a class and collective action against CRMC only, alleging various state and federal wage and hour violations, including that CRMC required Franklin to work during meal breaks and off-the-clock.

The district court granted CRMC’s motion to compel arbitration despite being a non-signatory to the contracts between Franklin and the staffing agency. The district court stated that Franklin’s allegations were “intimately founded in and intertwined with” her contracts and employment with the staffing agency. The district court held that, under California law, Franklin was equitably estopped from avoiding the arbitration provisions in her employment agreements with the staffing agency.

The Ninth Circuit panel affirmed the district court decision, holding that California law allows a non-signatory to invoke arbitration under the doctrine of equitable estoppel even when the signatory attempts to avoid arbitration by suing non-signatory defendants. The Ninth Circuit stated that the doctrine of equitable estoppel prevents a party from “playing fast and loose with its commitment to arbitrate.”

This case is instructive for employers who utilize staffing agencies and highlights the importance of understanding the agencies’ agreements with their employees. Moreover, staffing agencies and similar entities should review their contracts with employees to ensure their clients are encompassed within arbitration agreements they enter into with employees.

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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