United States: The Tenth Circuit Thwarts Plaintiffs' Attempt To Circumvent Arbitration Agreements, And Strengthens Alleged Joint Employers' Ability To Compel Arbitration

Seyfarth Synopsis: On November 9, 2021, the Tenth Circuit issued a ruling beneficial to alleged joint employers in wage and hour lawsuits. The Court held that a customer of staffing agencies could compel arbitration pursuant to arbitration agreements entered into between the plaintiffs and the staffing agencies, even though the customer was not a signatory to the agreements. While the ruling only explicitly addressed Oklahoma law, it is indicative of a clear trend toward courts in a number of states permitting non-signatory enforcement of arbitration agreements within the joint employer context.

The proliferation of wage and hour class and collective lawsuits has forced an increasing number of staffing agencies to enter into arbitration agreements containing class-and-collective-action waivers with their employees. In an effort to circumvent those agreements, plaintiffs' attorneys have strategically chosen to forego bringing suit against the staffing agencies that directly contract with or employ them, instead suing only the customers of the staffing agencies, claiming that the customers are the direct or at least joint employers of the workers employed by the staffing agencies and thus are the one liable for any alleged wage-hour violations. Because the staffing agency was not named in the lawsuit, the arbitration agreement between the plaintiff and staffing company is inapplicable-or so the argument goes. Joining an increasing number of other courts addressing other states' laws, the Tenth Circuit recently rejected such efforts to plead around arbitration agreements and class waivers under Oklahoma law.

In Reeves v. Enterprise Products Partners, LP, the plaintiffs worked for an energy company through third-party staffing companies that paid them for their work. The plaintiffs and their respective staffing companies entered into employment agreements containing arbitration clauses whereby they agreed to "resolve by arbitration all past, present, or future claims or controversies, including but not limited to, claims arising out of or related to my . . . employment."

The plaintiffs subsequently brought a proposed collective action under the Fair Labor Standards Act (FLSA) against the energy company, but not their staffing companies, claiming the energy company was their actual employer and that it unlawfully denied them overtime. The energy company then moved to compel arbitration based on the agreements the plaintiffs had signed with their respective staffing companies. The plaintiffs responded by contending that as a non-signatory to the arbitration agreements, the energy company could not compel arbitration.

The Tenth Circuit disagreed. Relying on an equitable estoppel theory under Oklahoma law, which governed the arbitration agreements, the Tenth Circuit held the energy company could compel arbitration, despite being a non-signatory to the agreements. The Tenth Circuit explained that equitable estoppel allows a non-signatory to enforce an arbitration agreement where a complaint raises allegations of "substantially interdependent and concerned misconduct by both the nonsignatory and the signatory to the contract."

The Reeves court then explained why this standard was met on the facts before it. Because the staffing companies were the ones who paid the plaintiffs, their allegations necessarily implicated the staffing companies' conduct, making them "in essence" parties. The Tenth Circuit found that the doctrine of equitable estoppel precluded the plaintiffs from "simply plead[ing] around" their arbitration agreements, which covered "any concern arising" out of the plaintiffs' employments, and the court had little doubt that a claim against a customer concerning payment was one such "concern." As a result, the court held that the customer was entitled to enforce the arbitration agreements under Oklahoma law.

The Tenth Circuit's holding dovetails with how other courts have treated similar scenarios. In Noye v. Johnson & Johnson Servs. Inc., 765 F. App'x 742 (3d Cir. 2019), for example, the plaintiff brought statutory claims against the staffing company that directly employed him and the staffing company's customer for whom he had worked. The plaintiff had signed an arbitration agreement with the staffing company, but not with the co-defendant. The Third Circuit, construing Pennsylvania law, held the customer could compel arbitration, despite being a non-signatory to the arbitration agreement, because the plaintiff's employment and arbitration agreements "were the vehicles" that placed him with the customer.

The upshot of Reeves, and similar cases, is that carefully drafted arbitration agreements can not only preclude class and collective actions for staffing companies, but can help shield their customers as well who may be sued on a joint employer theory. While Reeves only explicitly addressed Oklahoma law, it is indicative of a clear trend toward courts in a number of states permitting non-signatory enforcement of arbitration agreements. Nonetheless, a non-signatory's ability to enforce an agreement will inevitably turn on the language of the particular agreement at issue and the particular state law governing that agreement.

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