Soltero v. Precise Distribution, Inc.: Key Takeaways for Employers Relying on Arbitration Agreements for Temporary Workers

In Soltero v. Precise Distribution, Inc., Case No. CIVSB2203669 (May 18, 2024), the California Court of Appeal held that a non-signatory employer cannot compel arbitration in reliance on an arbitration agreement between a temporary helper and a staffing provider in the absence of certain conditions. The court rejected the two most common bases for third-party enforcement: (1) equitable estoppel and (2) third-party beneficiary. In reaching its holding, the court ruled that a non-signatory employer cannot compel arbitration where: (1) the plaintiff’s claims against the non-signatory defendant are not based on the terms of the contract containing the arbitration agreement, (2) the staffing provider is not a party to the lawsuit, or (3) the non-signatory is not explicitly identified as a beneficiary in the agreement.

Background Facts

Real Time, a temporary staffing agency, placed the plaintiff, Nelida Soltero, on assignment with Precise Distribution from October 2017 through January 2021. When Soltero applied for employment with Real Time, she signed a Mutual Agreement Regarding Arbitration and Class Claims (Agreement). The Agreement between Soltero and Real Time defined “the [C]ompany” to include several other companies “and all related entities,” but did not include clients nor alleged joint or co-employers. The Agreement covered claims arising out of Soltero’s employment with Real Time, which presumably would include claims that arose out of her temporary assignments. Precise was not a signatory to the Agreement.

In February 2022, Soltero filed a class action complaint against Precise for various wage and hour violations. Soltero did not name Real Time as a defendant. Her claims were alleged solely against Precise. In her complaint, Soltero only mentioned Real Time to establish venue. Specifically, she alleged she was “staffed by [Real Time], located in San Bernardino, to work at Precise’s distribution warehouse.” She did not take issue with or mention any of the terms of her employment agreement with Real Time.

Relying on the Agreement between Soltero and Real Time, Precise filed a motion to compel arbitration. Precise argued that, even as a non-signatory to the Agreement, it was entitled to compel arbitration based on theories of equitable estoppel, third-party beneficiary, and agency. The trial court denied Precise’s motion.

California Court of Appeal’s Decision

The California Court of Appeal affirmed the decision, finding that the trial court correctly denied Precise’s motion to compel arbitration for the reasons set forth below.

Equitable Estoppel

The Court of Appeal found that the trial court correctly declined to extend the use of equitable estoppel to compel arbitration under these circumstances. The court noted that the essential condition for application of equitable estoppel is that the claims asserted against the non-signatory must depend upon or be founded in the underlying contractual obligations of the agreement that contains the arbitration clause. Soltero did not mention or rely on any provision of her Agreement with Real Time as a basis for imposing liability on Precise. Thus, the court found that Soltero’s complaint against Precise did not rely on the terms of her employment contract with Real Time.

The court declined to follow Garcia v. Pexco, LLC, (2017) 11 Cal.App.5th 782, where the Court of Appeal, Fourth Appellate District found that a plaintiff’s claims against the non-signatory defendant were the types of disputes covered by the arbitration agreement. In so ruling, the court found that Garcia misapplied equitable estoppel, stating that a non-signatory defendant cannot compel arbitration simply because the scope of the arbitration agreement extends to the types of claims asserted by the plaintiff. Instead, the correct and critical question when applying the doctrine of equitable estoppel must be whether the plaintiff’s claims against the non-signatory defendant rely on the terms of the contract containing the arbitration clause. Further, the court opined that even if Garcia correctly applied the equitable estoppel doctrine to the facts before it, the decision in Garcia is nonetheless inapplicable to this case. Unlike Garcia, Soltero is not suing both Precise and Real Time on a joint employer theory nor is Soltero trying to bring any claims against Real Time.

Third-Party Beneficiary

The court determined that Precise was not a third-party beneficiary of the Agreement because, by its terms, the Agreement did not cover Real Time’s clients or alleged joint employers. Essentially, to invoke the third-party beneficiary exception in the temporary staffing context, the non-signatory must show that the agreement to arbitrate expressly covers non-signatory joint employers or the businesses that use the temporary helpers. The court found that the Agreement between Soltero and Real Time had a list of intended third-party beneficiaries. However, that list did not include Real Time’s clients, such as Precise. While Precise did not focus its argument on this point, the court foreclosed this argument nonetheless.

Agency

The court rejected Precise’s argument that it could enforce the Agreement as an agent of Real Time. The court noted that Soltero did not allege that Precise was an agent of Real Time or vice versa. More importantly, Precise did not submit any evidence of an agency relationship. In the absence of such evidence, the court found there was no basis to apply the agency exception. Precise simply argued that an agency relationship existed because Soltero alleged that she was staffed at Precise through Real Time. The court noted that this basic transactional association does not give rise to a principal-agent relationship. The court held that in the absence of evidence that the staffing agency and its client exercised control over each other, an agency relationship does not exist.

Takeaways for Employers

After Soltero, businesses should exercise caution when relying on arbitration agreements between temporary staff and their agency provider. Businesses that use temporary helpers should review the arbitration agreements used by their staffing providers to evaluate whether they are covered by the agreement and, if necessary, consider taking steps to ensure coverage.