Labor & Employment Law Daily Johnson & Johnson may be able to piggyback on Kelly Services’ arbitration agreement with FCRA claimant
Tuesday, April 9, 2019

Johnson & Johnson may be able to piggyback on Kelly Services’ arbitration agreement with FCRA claimant

By Lisa Milam, J.D.

There was a “close nexus” between Johnson & Johnson and the parties to the arbitration agreement, including Kelly Services, which recruited the plaintiff for the defendant. As such, Johnson & Johnson was entitled to compel arbitration based on estoppel principles.

A job applicant who applied for a position at Johnson & Johnson by way of Kelly Services may have to arbitrate his Fair Credit Reporting Act (FCRA) claim against the company pursuant to the arbitration agreement he signed with the staffing agency, the Eleventh Circuit held. Johnson & Johnson never signed the arbitration agreement; the issue, then, was whether state contract law allows non-signatories to compel arbitration under an alternative equitable estoppel theory. The answer was yes—under either Pennsylvania law (the relevant court jurisdiction) or Michigan (the choice of law set forth in the parties’ contract). Vacating a district court’s order denying Johnson & Johnson’s motion to compel arbitration, the appeals court, in an unpublished opinion, remanded for the lower court to decide whether the operative agreement covered the FCRA claim (Noye v. Johnson & Johnson Services Inc., April 4, 2019, Shwartz, P., unpublished).

Job offer through staffing agency. The plaintiff in this case had applied for a position at Johnson & Johnson through Kelly Services, which performs recruiting and placement services for the company. He was offered and accepted the job and was directed to Kelly’s online onboarding process, with a variety of forms to complete, including an “arbitration screen” (which the user could not bypass) linking to an arbitration agreement between Kelly and the applicant. He signed the employment agreement, which was then signed by a Kelly employee.

Background check hurdle. However, Kelly ordered a consumer background check, which indicated he had been convicted of a crime. Kelly requested more documentation from the applicant, and he cleared the staffing agency’s screening process. A few weeks later, though, he was told Johnson & Johnson was rescinding its job offer because the consumer report misrepresented four summary offenses as misdemeanors. He filed a putative FCRA class action against both companies, and they both moved to compel arbitration under the terms of the arbitration agreement he entered into with Kelly.

Round one: court denies motion to compel. Initially the court rejected the defendants’ bid to compel arbitration, finding sufficient evidence that the applicant did not intend to be bound by the arbitration agreement. (For example, there was evidence that although he hand-signed other documents, the arbitration agreement contained only a “typewritten version” of his name. He also said he didn’t recall signing the agreement and said that the day after he supposedly signed the arbitration agreement, he executed an agreement with Kelly consenting to nonbinding alternative dispute resolution.) At least as to Kelly, then, the court denied the motion and ordered limited discovery on the question of arbitrability.

Kelly’s renewed motion granted. Following discovery, the court determined the plaintiff had agreed to arbitrate as to claims against Kelly and also rejected his contention the agreement was unconscionable (despite a shorter limitations period than FCRA allows), granting the staffing agency’s renewed motion to compel arbitration. The court also found that the agreement covered his FCRA claims against Kelly. He argued that the agreement did not cover pre-employment disputes, but he had been hired by Kelly at that point. The court also rejected his assertion that his FCRA claim was not covered. The cause of action was based on the defendants’ alleged failure to provide him with a copy of his criminal background report and his FCRA rights before rescinding the position—conduct that occurred after he was hired. His effort to characterize the claim as unrelated to employment also was unavailing.

Johnson & Johnson’s motion denied. But the court ordered further briefing on Johnson & Johnson’s equitable argument for being allowed to piggyback on Kelly’s arbitration agreement—namely, that while it was not a signatory, it had a close relationship with the staffing firm, and there was a sufficient relationship between J&J’s alleged wrongs and its contractual obligations and duties. Johnson & Johnson argued that the applicant entered the binding arbitration agreement as part of his overall employment application process at the staffing firm, and his allegations accused both defendants of violating the FCRA. However, the district court was unconvinced and, in a subsequent ruling, denied Johnson & Johnson’s motion to compel. Even if a close relationship existed between the defendants, equitable estoppel did not apply because the applicant’s claims against Johnson & Johnson were not “intimately founded in and intertwined with the underlying contract obligations,” the court reasoned.

Third Circuit finds a “close nexus.” The appeals court disagreed, finding there was an “obvious and close nexus between” the non-signatory Johnson & Johnson and the parties to the arbitration agreement. The applicant applied for a job with Johnson & Johnson through Kelly and he received an employment offer to work at Johnson & Johnson through a Kelly recruiter—in an email bearing the subject line “Offer from J&J through Kelly Services.” Kelly was authorized to use the company’s logos and trademarks on the employment forms it relayed to the plaintiff, who received documents related to the onboarding process from Kelly in an email with the subject line “Kelly Services J[&]J [Hiring] Documents.” The arbitration agreement and background check forms were included among the documents, and were “the vehicles” by which the plaintiff was to be placed at Johnson & Johnson. Even his complaint referred to Kelly and Johnson & Johnson collectively as “Defendants” and accused them of the same conduct, the appeals court observed. The claims against both defendants were tied to the same conduct, implicated the same legal issues, and as such, were indistinguishable, and Johnson & Johnson’s interests were the same as Kelly’s. These facts demonstrated a close nexus sufficient to support application of alternative equitable estoppel.

That was the Third Circuit’s analysis under Pennsylvania law, but it found that application of the Michigan test supported the same result: the plaintiff’s FCRA claim resulted from his employment relationship and the arbitration agreement contemplated employment disputes. Also, he alleged “concerted and interdependent misconduct” by both defendants collectively in violation of the FCRA.

Remaining issue. The arbitration agreement applies to “Covered Claims” arising between the plaintiff and Kelly as well as “its related and affiliated companies,” including “all common-law and statutory claims relating to [the plaintiff’s] employment.” Whether that includes the plaintiff’s FCRA claim against Kelly’s customer, Johnson & Johnson, was a matter for the court below to decide on remand.

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