One down, one to go: A joint employer nightmare

Settle with staffing agency, go on to sue its client.

Can an employee bring a wage and hour class action against an employer staffing agency, settle, and then bring a second class action against the staffing agency’s client, premised on the same alleged violations?

The California Supreme Court says yes, where the client company was neither a party to the first lawsuit nor a named released party in the settlement.

Lawsuit No. 1

Staffing agency FlexCare, LLC, employed Plaintiff Lynn Grande as a nurse and assigned her to work at Eisenhower Medical Center for about one week in 2012. Ms. Grande alleged that EMC and FlexCare violated certain wage and hour laws, and she sued FlexCare. Ms. Grande represented “all persons who . . . were non-exempt nursing employees of [FlexCare] employed in California.” 

The parties later settled, and FlexCare agreed to pay no more than $750,000. Once the settlement amount was paid, the court “barred and enjoined” all class members “from prosecuting” certain claims “against the Released Parties,” defined as follows:

FlexCare, LLC, . . . [several individuals], and all present and former subsidiaries, affiliates, divisions, related or affiliated companies, parent companies, franchisors, franchisees, shareholders, and attorneys, and their respective officers, directors, employees, administrators, fiduciaries, trustees and agents, and each of their past, present and future officers, directors, shareholders, employees, agents, principals, heirs, representatives, accountants, auditors, consultants, insurers and reinsurers, and their counsel of record.

EMC was not a party to the class action lawsuit, nor was it explicitly named in the settlement agreement.

Lawsuit No. 2

The following year, Ms. Grande sued EMC as an alleged joint employer with FlexCare, asserting the same claims she had asserted against the agency but defining the putative class as all nonexempt employees of the hospital placed by any staffing agency. FlexCare moved to intervene, and both FlexCare and EMC argued that the judgment in the first lawsuit released EMC and barred Ms. Grande’s second lawsuit.

The courts agree: EMC was not released

The trial court ruled in favor of Ms. Grande on the following grounds:

  • The settlement agreement did not explicitly refer to EMC in the list of released parties.
  • FlexCare was not “in privity” with EMC, thereby preventing EMC from relying on the judgment in the first lawsuit to preclude the second lawsuit.
  • There was no support for derivative liability to preclude Ms. Grande’s second lawsuit.

The California Court of Appeal affirmed, and the matter went to the state Supreme Court. In affirming the Court of Appeal, the Supreme Court said that FlexCare’s and EMC’s “divergent interests” meant that they were not “in privity,” which “requires the sharing of an identity or community of interest, with adequate representation of that interest in the first suit, and circumstances such that the nonparty should reasonably have expected to be bound by the first suit.”

In other words, the class action against EMC will proceed.

What now?

Employers in "joint employment" relationships should certainly be aware of Grande and do what they can to protect themselves. But the situation is not hopeless.   

  • Grande may not apply to everybody. Although the Grande decision has significant implications for joint employers – and, specifically, staffing agencies and their clients – it explicitly states that “our decision on this issue is fact and case specific,” suggesting that the Court’s holding will not necessarily apply in all cases.
  • There's an easy fix, for joint employers who haven't already settled. In the release language of their settlement agreements, employers should consider identifying as “released parties” all entities who may be considered joint employers, where feasible and appropriate, to ensure their settlement agreements cover and extend to all relevant and associated parties.

California employment laws keep employers up at night, wondering what is coming next. There always seems to be something. From new statutes to new regulations to new court decisions, we will keep you up to date on developments in the areas of wage and hour, discrimination, leaves of absence, retaliation, class actions, PAGA, and arbitration. We’ll also provide you with practical information on how to update your policies and employment practices. Please subscribe to keep current.


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