Resolving a conflict in the Courts of Appeal, the California Supreme Court held that an employee’s settlement of their Labor Code and Unfair Competition lawsuit against a staffing agency did not bar them from then alleging the same claims against the staffing agency’s client in a later action. (Grande v. Eisenhower Medical Center)

Background

Plaintiff Grande was assigned through a temporary staffing agency (Flexcare) to work as a nurse at Eisenhower Medical Center (Eisenhower). Grande was a named plaintiff in a class action lawsuit against Flexcare alleging wage and hour violations under the Labor Code and violation of the Unfair Competition Law.  Flexcare settled with the class including a release of all claims from Grande. The hospital was not a party to that initial lawsuit and the settlement did not name the hospital as a released party. Nonetheless, Grande then sued Eisenhower alleging identical wage and hour violations.

 Eisenhower argued that Grande was prohibited from bringing suit against Eisenhower because she had settled and subsequently released all claims in the prior suit. The Court of Appeal disagreed, criticizing the reasoning of a published opinion that found claim preclusion on similar facts, and the Supreme Court granted review to resolve the conflict. Ultimately, the Supreme Court found that Eisenhower was not a released party under the Flexcare settlement agreement and had no protection against the subsequent suit as it had no “privity” with Flexcare nor was it a party in the prior litigation.

The CA Supreme Court Decision

The California Supreme Court’s holding centered on privity[i]. The Court found that judgments, “bind not only parties but also “those persons ‘in privity with’ the parties.”” According to the Court, for Eisenhower’s affirmative defense of claim preclusion to be successful it must have been a party to the prior action or in privity to a party.

Eisenhower argued it was in privity to FlexCare, but the Court found privity “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.” No such privity was found between Eisenhower and FlexCare because they had different legal interests. The Court further found that claim preclusion could not be based on a claimed indemnification or agency relationship between litigants.

The Significance of The Court’s Decision:

Employers utilizing staffing agencies should review those contracts to ensure indemnification and notice obligations are clearly stated and enforceable. Conversely, staffing agencies will want to reconsider how they settle future claims in situations where their clients are not named litigants. Clients of staffing companies who settle cases where the plaintiff(s) worked should ensure the release expressly names the client or specifies a group of clients of the staffing agency. This will be especially important should they have indemnification obligations to such clients.