Isabelle Franklin worked as a nurse with United Staffing Solutions, Inc. (USSI), a staffing agency. While working for USSI, Franklin signed an arbitration agreement agreeing to arbitrate “all disputes … related to” her employment.
In late 2017, USSI assigned Franklin to work at Community Regional Medical Center’s hospital (the Hospital) in Fresno, California. Franklin then signed an assignment contract with USSI regarding her wages and overtime rate, the length of her shifts, and USSI’s reimbursement policies. The assignment contract also required arbitration for any controversy arising between USSI and Franklin involving the terms of the agreement. The Hospital was not a party to either of the contracts between Franklin and USSI, and it did not have its own contract with Franklin. Instead, the Hospital contracted with a managed service provider, Comforce Technical Services Inc. (RightSourcing) to source nursing staff. RightSourcing, in turn, contracted with USSI to provide contingent nursing staff like Franklin to the Hospital.
Under this arrangement, the Hospital retained supervision over the contingent nursing staff’s work. RightSourcing billed the Hospital and remitted the payment to USSI for time worked by contingent nursing staff. USSI set the wages of the nursing staff and paid them accordingly. The contract between RightSourcing and USSI required the nursing staff to use the Hospital’s timekeeping system, but it allowed USSI to review the records for any discrepancies.
Following her assignment, Franklin brought a class and collective action against the Hospital alleging violations of the Fair Labor Standards Act (FLSA), the California Labor Code, and the California Business and Professions Code. Franklin’s FLSA claim alleged the Hospital required her to work during meal breaks and off the clock, but did not pay her for that work. The district court dismissed Franklin’s lawsuit, finding that even though the Hospital did not sign Franklin’s contracts with USSI, she was required to arbitrate with the Hospital. Franklin appealed.
Generally, those who have not agreed to arbitrate agreement cannot be compelled to do so. However, under California law, a non-signatory can compel arbitration when a signatory “attempts to avoid arbitration by suing non-signatory defendants for claims that are based on the same facts and are inherently inseparable from arbitrable claims against signatory defendants.”
On appeal, the U.S. Court of Appeals for the Ninth Circuit relied on California cases to determine that Franklin’s claims against the Hospital were “intimately founded in and intertwined with” her employment contract with USSI. The thrust of Franklin’s claims was that she was owed wages and overtime for the unrecorded time she worked, and her employment with USSI was central to those claims. For example, USSI was responsible for seeking meal period waivers and compensating Franklin for missed meal breaks. USSI was also responsible for reviewing the timekeeping records, raising any discrepancies with the Hospital, and compensating her for her services. Thus, as a matter of equity, Franklin could not avoid arbitration simply because she sued only the Hospital and not USSI. Franklin was required to arbitrate her claims against the Hospital, and the district court properly dismissed the action.
Franklin v. Cmty. Reg’l Med. Ctr., 2021 WL 2024516 (9th Cir. May 21, 2021).
Note:
This defense strategy applied California law to allow the Hospital to avoid an expensive trial on the merits of the wage and hour claims. Note that as to California Fair Employment and Housing Act (FEHA) claims, however, employers cannot require any applicant or employee to submit any FEHA discrimination claims to mandatory arbitration, as a condition of employment, continued employment, or the receipt of any employment-related benefit.