The California Supreme Court on June 30 ruled that a worker who brings an employment class-action against a staffing firm — and executes a settlement agreement releasing the firm of claims — may also initiate a second class-action premised on the same violations against the staffing company’s client.

In its ruling for Grande v. Eisenhower Medical Center, the court rejected the argument that the employer was an “agent” of the staffing company and that all claims had therefore been released.

Background. Staffing firm FlexCare LLC arranged for nurse Lynn Grande to work at Eisenhower Medical Center, which she did for about a week in February 2012. Grande then brought a class-action lawsuit — based solely on her work assignment at Eisenhower Medical Center — against the staffing firm for violating the Labor Code and the Unfair Competition Law. Grande and FlexCare settled, with the staffing firm to pay no more than $750,000.

The hospital was not a party to that initial lawsuit, and the settlement did not name the hospital as a released party.

The nurse then sued the hospital in a separate class action based on the same alleged violations. The hospital argued that because of the first judgment, claim preclusion foreclosed the nurse’s second suit, but the Court of Appeal disagreed, sending the case to the California Supreme Court.

Easy fixes. The state’s high court rejected the argument that the employer was an “agent” of the staffing company and that all claims had therefore been released, Monte Grix of law firm Hirschfeld Kraemer LLP wrote in a JDSupra blog post. “This decision allows employees a potential double recovery, but there are easy fixes that come with smart lawyering when a case against either party settles,” Grix wrote.

Employers can learn two critical points from this decision, according to Grix:

  • First, if the intent of a class settlement agreement between a staffing agency and a representative plaintiff is to also release the staffing firm’s clients (or vice versa), the agreement should state that clearly; do not rely on ambiguous terms like “agent” and hope that saves the day.
  • Second, any time a staffing firm is involved, there is the potential for the firm and the end user to be liable as “joint employers,” and both parties should be actively involved in resolving or litigating. Otherwise, paying twice is a real possibility.

While the court expressly stated that the Grande decision was “fact- and case-specific,” the plaintiffs’ bar will likely seek to adapt the logic and reasoning of the decision to current and future litigation involving staffing companies and/or their clients, The National Law Review reported.

To minimize the risk of a similar result in class and California Private Attorneys General Act actions, employers may want to ensure that contracts between staffing companies and their clients contain indemnity and other provisions that expressly detail the roles and responsibilities of each party to the agreement in the event that a current or former employee of the staffing company initiates a class and/or PAGA action. Employers may also want to review the release language in settlement agreements in these actions to ensure that the release covers, if appropriate, both the staffing company and the client.