Nearly four years ago, the U.S. Supreme Court held employers can enforce arbitration agreements that waive an employee’s right to join a class action lawsuit. Since then, many companies have avoided what would be costly class action lawsuits, particularly in the wage and hour context, by requiring individual arbitration with employees. Despite this, there was often a gap for joint employers, specifically those companies that use staffing agencies to perform some type of labor. Now, a federal appeals court has made the loophole smaller.
Background
Oil and gas companies may use vendors or staffing companies to provide labor on an oil rig. Or a company may contract with a janitorial services provider to clean its offices. In those instances, the staffing companies would have the direct relationship with the workers. As staffing companies began to use arbitration agreements with class action waivers more often, it became increasingly difficult for employees to file to class action lawsuits.
To get around this, more employees were suing the companies that used the staffing agencies and didn’t have arbitration agreements with them, arguing they were either a direct employer or joint employer. Applying Oklahoma law, a federal court of appeals recently restricted, if not completely foreclosed, the increasingly common litigation tactic.
Facts
Darrell Reeves, James King, and Todd Orcutt worked as pipeline welding inspectors. They were employed by two staffing companies. In turn, the companies contracted with Enterprise Products Partners to provide welding inspectors on their pipelines. The three workers were paid directly by the staffing companies and had arbitration agreements with them that required arbitration of any claims related to their employment. Enterprise, however, wasn’t a named party to the arbitration agreements.
The three workers filed a class action case against Enterprise, arguing they were legally Enterprise employees and entitled to unpaid overtime. The pipeline operator responded by asking the court to compel arbitration, arguing the three workers’ arbitration agreements with the staffing company prohibited them from filing or joining a class action case.
The trial court held that because Enterprise wasn’t a signatory to the arbitration agreements, it couldn’t enforce them. The appeals court disagreed. It reversed the trial court, essentially mitigating the costly risk of the pipeline operator fighting a larger class of unpaid wage claims.
In a detailed analysis of Oklahoma law, the appeals court essentially held the three workers’ claims against Enterprise were so intertwined with their employment for the staffing agencies that they couldn’t avoid their arbitration obligations. Reeves v. Enterprise Products Partners, LP.
Lesson
Arbitration agreements aren’t one-size-fits-all. This may be particularly true if you use workers provided by a staffing company. As part of any contract negotiations, however, any company that uses contract labor (whether it’s for workers in the oil patch, skilled nursing, cleaning services, or day laborers) would be well advised to ask the staffing agency to provide copies of any arbitration agreements it may have with its workers. In some cases, it may be appropriate for you to require the staffing agency to have arbitration agreements with class waivers as a condition of doing business with them.
Conversely, staffing companies may be well served to implement or review their arbitration agreements to make it clear workers have to go to individual arbitration for any lawsuits they may file against the staffing company’s clients. In short, a small amount of time reviewing such agreements now can avoid a lot of risk of a costly class or collective action later.
Philip Bruce is an attorney in the Oklahoma City office of McAfee & Taft. He can be reached at philip.bruce@mcafeetaft.com.