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Client Cannot Enforce Against Employee Her Arbitration Agreement with Staffing Agency

Margherita M. Albarello

EMPLOYMENT AND BUSINESS LAW ALERTS AND UPDATES

 

Employee Anne filed a Title VII sexual harassment and retaliation suit against Fromm Family Foods, where she had been placed by a staffing agency. She did not sue the staffing agency. During the discovery process, Fromm learned that Anne’s contract with the staffing agency included an arbitration clause. Fromm moved to compel arbitration, but the district court denied the motion. Scheurer v. Fromm Family Foods LLC, No. 163327 (7 th Cir. July 17, 2017).

The 7 th Circuit Court of Appeals (which covers Illinois, Indiana, Wisconsin, and Michigan) agreed with the lower court. The arbitration agreement Anne signed with the staffing agency stated: “In the event there is any dispute between Employer and I relating to my employment or the termination of my employment, which Employer and I are unable to resolve informally through direct discussion, regardless of the kind or type of dispute, Employer and I agree to submit all such claims or disputes to be resolved by final and binding arbitration in accordance with the National Rules for the Resolution of Employment Disputes of the AAA within the state of employment.” The arbitration clause identified Title VII claims in the list of claims covered by arbitration.

The court began its analysis noting that arbitration is contractual and that a party “cannot be required to submit to arbitration any dispute which he has not agreed so to submit.” Fromm argued that even though it was not a party to the arbitration agreement, “equitable estoppel” should compel arbitration. Equitable estoppel is a legal principle that stops someone from taking a position that conflicts with his previous claims or behaviors. The party arguing estoppel must show that it relied upon the other’s claims or behaviors to its detriment. Fromm argued that since Anne signed a contract with the staffing agency to arbitrate her Title VII claims, she could not refuse to arbitrate her claims against Fromm. The court found that Fromm could not prove that it relied upon Anne’s contract to arbitrate Title VII claims since Fromm admitted that it did not learn of the contract until after Anne filed suit.

What This Means for Employers

Employers often look to temporary staffing agencies to fill pressing employment needs. The case underscores the significance of understanding whether the staffing agency has adequate measures in place to protect your business. If your business uses temporary staffing agencies, scrutinize their employment policies and contracts with employees. If arbitration of employment disputes is important to you, consider having temporary workers sign arbitration agreements, even if you and the staffing agency agree that the worker is solely an employee of the staffing agency.

According to EEOC guidance and applicable case law, staffing agencies are responsible for discrimination, retaliation, and harassment that their employees confront at clients’ work sites. Further, to the extent that the working conditions of staffing firms’ employees are controlled in whole or in part by the clients to whom the employees are assigned, clients are responsible, too. As the EEOC guidance makes clear, staffing firms must hire and make job assignments in a nondiscriminatory manner and client companies must treat staffing firm workers assigned to them in a nondiscriminatory manner. Further, a staffing firm must take immediate and appropriate corrective action if it learns that a client has discriminated against one of its workers.

The nature of the staffing firm/client company relationship makes dealing with EEO issues and employment laws even more difficult than is typically the case. When in doubt about how to handle a particular situation, call me.

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