A California appellate court ruled that an employer could not compel arbitration based on an agreement between the employee and the staffing agency that placed her.

A temporary staffing agency that hires and places workers at California businesses, Real Time Staffing Services (Real Time), hired Nelida Soltero as an employee in December 2016. As part of her onboarding process, Soltero electronically signed the Spanish language version of a Mutual Agreement Regarding Arbitration and Class Claims.

The agreement defined “the Company” to include Real Time, its parent company, multiple other named companies and “all related entities,” but not their clients.

Real Time placed Soltero with one of its clients, Precise Distribution, in October 2017, where she worked for several years. In 2022, Soltero filed a class action complaint against Precise, alleging various violations of the California Labor Code, including failure to provide required meal periods and rest breaks, to pay premiums for meal and rest break violations and to issue compliant wage statement claims.

Soltero did not name Real Time as a defendant.

Precise filed a motion to compel arbitration based on the arbitration agreement between Soltero and Real Time, arguing that, even as a nonsignatory to the agreement, it was entitled to compel arbitration based on theories of equitable estoppel, third-party beneficiary and/or agency.

The trial court denied the motion and the appellate panel affirmed, finding no merit in any of the three theories.

Considering equitable estoppel, the court explained that, for Precise to enforce the arbitration agreement as a non-signatory, Soltero’s claims “must be dependent upon, or founded in and inextricably intertwined with, the underlying contractual obligations of the agreement containing the arbitration clause.” In other words, the plaintiff’s claims against a nonsignatory defendant must actually rely on the terms of the contract containing the arbitration clause.

The court, however, found that was not the case here, as Soltero sued Precise for its alleged violations of the Labor Code and did not mention or rely on any provision of her employment agreement with Real Time as a basis for imposing liability on Precise. The court reasoned: “She is not trying to have it both ways because she is not seeking to impose liability on Precise based on the terms of her employment agreement with Real Time while simultaneously seeking to avoid the arbitration clause of that same agreement.”

Indeed, Soltero, the court noted, did not even name Real Time in her complaint.

As for the theory of third-party beneficiary, the answer turned on whether Precise, as a nonsignatory, is a third-party beneficiary of the arbitration clause itself. Again, Precise was unable to persuade the court.

“The arbitration agreement had its own list of intended third-party beneficiaries,” the court said, and while it named other entities, it excluded Real Time’s clients, such as Precise.

Finally, the court rejected Precise’s attempt to rely on an agency theory, as Soltero’s complaint did not allege that Precise acted as an agent of Real Time or vice versa, nor did Precise submit any evidence of such an agency relationship.

“The record includes no allegation or evidence that either entity had control over or a right to control the other or authority to act on the other’s behalf,” the court said. “Absent any such allegation or evidence of an agency relationship, there is no basis to apply the agency exception.”

To read the opinion in Soltero v. Precise Distribution, Inc., click here.

Why it matters

The court refused to compel arbitration in favor of a nonsignatory to the arbitration agreement between the plaintiff and the staffing company that hired her, determining that none of the theories presented by the company with which the plaintiff was staffed—equitable estoppel, third-party beneficiary or agency—applied.