Update June 30, 2022: On June 30, 2022, in a unanimous decision, the California Supreme Court affirmed the California Court of Appeal’s decision in Grande v. Eisenhower Medical Center, Nos. E068730, E068751, discussed below. The Court held that there was substantial evidence to uphold the Court of Appeal’s determination that the settlement agreement reached between the class and staffing agency did not encompass the staffing agency’s client. The Court further analyzed whether the staffing agency’s client could be considered in privity with the staffing agency such that claim preclusion applied. The Court found that under the facts of the case, claim preclusion did not apply.
Takeaway: Settlement agreements should carefully list released parties and not rely on boilerplate language. This is particularly true in a case where a staffing agency is a named defendant, but not its client where the employee was placed, such as in the Grande case. In such a scenario, any settlement agreement should expressly release the client.
California Court of Appeal Creates Split in Authority Over Scope of Settlement Agreement with Staffing Agencies
On February 6, 2020, in a 2-1 decision, the California Court of Appeal (Fourth District, Division Two) held that an employee’s settlement agreement with a staffing agency on a wage-and-hour claim does not necessarily preclude the employee from later suing the staffing agency’s client, for whom the employee performed services, on the exact same claims.
Thursday’s decision, Grande v. Eisenhower Medical Center, Nos. E068730, E068751, is directly at odds with a 2018 decision from a different district of the California Court of Appeal (Second District, Division Two), Castillo v. Glenair, Inc., 23 Cal. App. 5th 262 (2018), which stated clearly in its opening lines: “In a joint employer arrangement, can a class of workers bring a lawsuit against a staffing company, settle that lawsuit, and then bring identical claims against the company where they had been placed to work. We answer no.” The split between Grande and Castillo may lead to resolution by the California Supreme Court. In the meantime, the lower courts are free to follow either Grande or Castillo.
FlexCare, LLC, a temporary staffing agency, assigned Lynn Grande to work as a nurse at Eisenhower Medical Center. Grande worked at Eisenhower for just eight days. After her assignment at Eisenhower ended, Grande became a named plaintiff in a class-action lawsuit against FlexCare brought on behalf of FlexCare employees assigned to hospitals throughout California. The case alleged standard wage-and-hour claims, including unpaid overtime and meal and rest break claims. FlexCare settled with the class, and Grande executed a release of claims. The release included standard language releasing the named defendant’s subsidiaries, affiliates, divisions, parent companies, etc. It did not, however, expressly release Eisenhower or the category of FlexCare’s clients.
Grande then turned around and sued Eisenhower in a separate class action, based on the same labor law violations, but on behalf of all nurses of any staffing agency employed and assigned to work at Eisenhower. After Eisenhower demanded indemnification from FlexCare, FlexCare intervened in the Eisenhower class action, arguing (1) that the judgment in the FlexCare class action precluded Grande’s claims against Eisenhower on res judicata grounds, and (2) that Eisenhower was a released party under the FlexCare settlement agreement. The trial court ruled against FlexCare and Eisenhower on both grounds, and FlexCare appealed.
Court of Appeal’s Decision
The court of appeal affirmed. First, the court held that the doctrine of res judicata did not bar Grande’s claims against Eisenhower because Eisenhower and FlexCare were not in “privity.” The fact that FlexCare and Eisenhower were alleged to be jointly and severally liable and joint employers, and that FlexCare was required to indemnify Eisenhower, was not enough to satisfy the privity requirements of res judicata. On this point, the court of appeal parted ways with Castillo, which had held that the staffing agency and client, in that case, were in privity.
Second, and of most practical importance, the court of appeal held that Eisenhower was not a released party under the FlexCare settlement agreement. The court read the release language carefully, and noted (1) that Eisenhower was not identified as a released party and (2) that the agreement did not include language identifying “clients, joint employers, joint obligors, or other similar language” of FlexCare within the long list of categories of people and entities who fell within the definition of “Released Parties.” The fact that the release included “related and affiliated companies” was insufficient to cover Eisenhower. The court explained that “[i]f the settlement defined ‘Released Party’ by naming Eisenhower, as it named FlexCare and several other individual parties, we would have to conclude that Grande had settled her claims against the hospital.”
On this second point, the court of appeal again parted ways with Castillo. In Castillo, the court of appeal held that the client was an “agent” of the staffing agency, and therefore it fell within the scope of the release. The Grande court declined to find an agency relationship between FlexCare and Eisenhower.
One justice in Grande dissented, explaining in a short separate opinion that he would have followed Castillo.
What Employers Should Know
This case is an important reminder to exercise care in drafting settlement agreements, particularly the scope of the release. In complex cases involving multiple entities, staffing agencies, joint employers, or potential indemnitees, the release should expressly name each and every released entity. Do not assume that the boilerplate list of successors, predecessors, assigns, etc. will be sufficient.
Contact Payne & Fears LLP if you have any questions.