The California Supreme Court says an employee can file a wage and hour class action against an employer staffing agency, settle, and then file a second class action against the staffing agency’s client.
Riverside, CAThe California Supreme Court has given the green light to a nurse who brought a second class action lawsuit, alleging the same California wage and hour violations, but against two entities not directly connected.
The First Lawsuit
Lynn Grande was employed at Eisenhower Medical Center, which was arranged by a staffing agency called FlexCare LLC. She worked for about a week in February 2012, then in December 2015 she sued FlexCare for violating the California Labor Code and the Unfair Competition Law. According to the lawsuit, Grande claimed that Eisenhower failed to pay her for all hours worked and failed to compensate her for meal period and rest break premiums. Grande represented represented “all persons who . . . were non-exempt nursing employees of [FlexCare] employed in California.”
The parties settled and FlexCare agreed to pay no more than $750,000. After the settlement amount was paid, the court “barred and enjoined” all class members “from prosecuting” certain claims “against the Released Parties,” 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.
Eisenhower Medical Center (EMC) was not a party to the initial class action lawsuit, and the settlement did not name the hospital as a released party.
The Second Lawsuit
Eight months after the settlement was approved, Grande filed another wage and hour class action—this time against EMC and based on the same alleged violations. Grande filed the second class action alleging EMC is a 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. JD Supra reported that 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 hospital argued in March 2020 that Grande was part of a separate lawsuit, which another nurse filed in 2012 against FlexCare and that Grande later joined as a named plaintiff. Further, because this lawsuit alleged the same violations as her 2015 (first) lawsuit, Grande should be prevented from raising the same claims in another suit after settling the other matter. Both FlexCare and the hospital argued that the hospital was entitled to the benefit of the earlier release, and that the first judgment precludes the nurse from bringing this second suit.
The justices disagreed, asserting that "claim preclusion can be asserted only by a party in the first action or someone in privity with a party in the first action." In the words of Law360, “because the hospital was not a party in the first suit, and because the hospital and the staffing agency — which intervened in the underlying case — have different legal interests, Grande can pursue her suit against Eisenhower, the justices ruled.”
According to the complaint, the California 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 court held that “an employee who brings an employment class action against a staffing agency and executes a settlement agreement releasing the agency and its agents may bring a second class action against the staffing agency’s client [the hospital] premised on the same violation.
Joint Employment Relationships
Employers in "joint employment" relationships should certainly be aware of Grande and do what they can to protect themselves, advises JDSupra. But it may not be all that bad. 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.
JDSupra suggests that, 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.
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