Labor & Employment Law Daily Nonsignatory company can’t compel arbitration of employee’s wage-hour claims based on his agreement with staffing company
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Wednesday, January 30, 2019

Nonsignatory company can’t compel arbitration of employee’s wage-hour claims based on his agreement with staffing company

By Harold S. Berman J.D.

A review of the facts here, said the court, mandates the conclusion that “‘the obvious bar to arbitrability is the abecedarian tenet that a party cannot be forced to arbitrate if it has not agreed to do so.’”

A retail company could not require an employee to arbitrate his wage-hour claims against it  because the employee agreed to arbitrate only with the staffing company that placed him, and the retail company was not a signatory to the agreement containing the arbitration clause, the First Circuit ruled, affirming the district court’s denial of the motion to compel arbitration. The language of the agreement to arbitrate was specifically limited to the employee and the staffing company, and did not confer any benefits on the retail company (Hogan v. SPAR Group, Inc., January 25, 2019, Torruella, J.).

Arbitration agreement. A staffing company placed the employee as a field specialist with a retail services company. The employee entered into an “Independent Contractor Master Agreement” with the staffing company as a prerequisite to his placement. Although the staffing company was affiliated with the retail company, it was not a subsidiary of or controlled by the retail company. The agreement stipulated that the employee and the staffing company would resolve all disputes through arbitration. The retail company was not a party to the agreement.

Litigation. The employee subsequently brought a putative class action against both companies, alleging they misclassified him and other field specialists, as independent contractors rather than employees to avoid paying required expenses, and effectively paid them below minimum wage.

Motion to compel arbitration. The staffing company and the retail company both moved to compel arbitration, arguing that both were protected by the arbitration provision in the agreement between the staffing company and the employee. The federal district court compelled arbitration as to the employee’s claims against the staffing company, but denied the motion to compel as to the retail company, finding it had no legal basis to compel the employee to arbitrate. The retail company appealed, and the First Circuit affirmed the district court’s decision.

Not a third-party beneficiary. The court rejected the retail company’s argument that, although not a signatory, it was a third-party beneficiary to the agreement containing the arbitration clause. The language of the arbitration clause clearly showed that the retail company was not intended as a third-party beneficiary of the employee’s and staffing company’s agreement to arbitrate.

Although the retail company argued it was a third-party beneficiary because the agreement conferred on it, as a “customer” of the staffing company, the right to dictate certain work requirements to the employee, the agreement stated only that the staffing company would provide the employee with scheduling and assignment requirements that it received from the retail company. At best, the agreement’s language granted a vague benefit, but lacked the special clarity required to confer third-party beneficiary status on the retail company.

Limited applicability. Even if the retail company benefited from the agreement’s language, merely granting a benefit to a nonsignatory resulting from a signatory’s exercise of its contractual rights, without a clear intent to confer specific legal rights, did not make the retail company a third-party beneficiary. Additionally, even a clear intent to confer a benefit unrelated to arbitration would not change the import of the arbitration clause’s language, which limited its applicability to disputes between the signatories.

The limits of the arbitration clause were made even clearer by the agreement’s mention of the staffing company’s “customers” in other sections of the agreement, but omission in the arbitration clause. The agreement also contained an integration clause that highlighted the staffing company’s and employee’s intent to limit the right to invoke the arbitration clause only to the agreement’s signatories.

No equitable estoppel. The court also rejected the retail company’s assertion that the employee was equitably estopped from avoiding arbitrating his claims against the retail company because those claims were “intertwined” with the agreement, and the retail company and the staffing company were “closely related.”

The arbitration provision specifically was limited to disputes between the staffing company and the employee, and so the employee consented to arbitrate claims only between himself and the staffing company. The court could find no legal basis to force the employee to arbitrate his claims against the retail company when he demonstrated no intent to do so.

Nor could the retail company show that the employee’s claims against it were “intertwined” with the agreement. The employee’s claims against the retail company were based on Massachusetts wage and hour law, not on his agreement with the staffing company. The employee’s claims would exist even if the agreement were declared void because they were based on the nature of his services to the retail company. Nor did the employee claim any benefit or right from the retail company based on the agreement.

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