Can a California Employer Use a Staffing Agency's Arbitration Agreement Against You?
A California appeals court held that an employer could not enforce a staffing agency's arbitration agreement to compel arbitration of claims arising from years of later, direct employment. The decision is a clean win for California workers who started through a temp agency and were later hired directly.
When a temp agency placed Robert Toothman at Redwood Toxicology Laboratory and he later became a direct Redwood employee for nearly four years, Redwood tried to use the old staffing agency arbitration agreement to force his class action into individual arbitration. The California Court of Appeal said no — the agreement covered employment with the staffing agency, not the separate direct employment that came afterward. The class action survives.
From Temp Worker to Direct Employee — Then a Class Action
Robert Toothman was hired in January 2018 by Apex Life Sciences, a temporary staffing agency. When Apex placed him at Redwood Toxicology Laboratory, he signed two contracts: an Employment Agreement with Apex, and a companion Arbitration Agreement. The Arbitration Agreement defined "Company" as "Apex Life Sciences, LLC, a division of On Assignment, Inc., its affiliates, subsidiaries and parent companies." It required Toothman to arbitrate disputes with "Company" and waived his right to bring class or representative claims.
Notably, Apex's own Employment Agreement defined a separate category for the third-party businesses where it placed workers — calling them "Clients." Redwood was such a Client.
Three months later, in April 2018, Toothman's employment with Apex ended. Two days after that, Redwood hired him directly. He worked there for over four years, until June 2022, without ever signing an arbitration agreement with Redwood.
In September 2022, Toothman filed a class action against Redwood for Labor Code violations occurring entirely during his direct employment period. Redwood moved to compel arbitration based on the old Apex agreement. The trial court denied the motion. Redwood appealed.
The Court of Appeal affirmed the denial on multiple independent grounds. First, on burden-shifting: when a nonsignatory (like Redwood) tries to enforce an arbitration agreement, the nonsignatory bears the initial burden of establishing it is entitled to invoke the agreement. The burden does not shift to the employee simply because an agreement exists.
Second, on whether Redwood was a party: Redwood argued it was an "affiliate" of Apex and therefore covered by the agreement. The court rejected this. Every other term in the "Company" definition — subsidiaries, parent companies, the Apex divisions — involved ownership or control. Construing "affiliates" to include arms-length commercial customers like Redwood would conflict with the surrounding contract language, the contract's structure (which separately defined "Clients"), and the broader purpose of the agreement.
Third, on third-party beneficiary status: The court did not even need to reach this argument because the Arbitration Agreement, by its own terms, only covered "any dispute arising out of or related to [Toothman's] employment with, or termination of employment from, Company" — meaning Apex. Toothman's claims arose entirely from his direct employment with Redwood, not from his employment with Apex. Even if Redwood were a third-party beneficiary, the claims fell outside the agreement's scope.
Fourth, on equitable estoppel: The court rejected this because Toothman's claims were not "founded in," "dependent upon," or "inextricably intertwined with" the Apex agreement. If anything, the claims depended on his employment with Redwood — not with Apex.
Every theory Redwood put forward failed. The class action survives.
What Toothman Does — and Doesn't — Decide
The opinion is a clear win for employees, but it is also a precise one. The court did not hold that staffing agency arbitration agreements never apply to direct employment. It held that this particular agreement, by its own terms and structure, did not cover this particular dispute.
That distinction matters. Employers and staffing agencies may attempt to write broader agreements going forward — defining "Company" or "affiliates" to expressly include third-party businesses, or extending the substantive scope to cover any future employment with related entities. And the analysis would be different if the staffing agency and the direct employer were genuinely under common ownership or control — which would make the direct employer an actual "affiliate" within the natural meaning of the word.
What this opinion really protects is the principle that arbitration is a matter of contract. The court repeatedly emphasized that "a party cannot be required to submit to arbitration any dispute which he has not agreed so to submit." The fine print only covers what it says it covers. If the agreement was written narrowly, or if the work occurred outside the agreement's defined scope, the employer cannot back-fill its way into arbitration through creative interpretation.
What This Means for California Workers Who Started Through a Staffing Agency
If you started a job through a temporary staffing agency and were later hired directly by the company where you worked, the arbitration agreement you signed with the staffing agency may not control disputes with your direct employer. That is especially true if:
- The agreement was signed only with the staffing agency, not with the direct employer
- The direct employer has no ownership or control relationship with the staffing agency
- The misconduct you are challenging occurred during your direct employment period, after the staffing relationship ended
- The arbitration agreement uses language like "affiliates, subsidiaries and parent companies" without expressly including the third-party businesses where the staffing agency placed workers
If your direct employer never had you sign its own arbitration agreement, your right to a jury trial and to participate in a class action may still be intact — even if the employer is currently trying to force arbitration based on old staffing agency paperwork.
This pattern is common in California. Many workers come into a company through a staffing arrangement, work for months or years as a contract employee, and then convert to direct employment. The paperwork from the initial placement often sits in a personnel file unread. Years later, when something goes wrong, the employer pulls it out as a defense. Toothman is one of the clearer recent California decisions saying that strategy has real limits.
Started Through a Staffing Agency? Now Facing a Wage or Workplace Dispute?
If your employer is trying to use a staffing agency's old paperwork to push your claim into arbitration, the analysis is fact-specific — and the answer is often more favorable to the employee than the employer wants to admit. Call ShortLegal for an evaluation.
Why This Case Matters Beyond Its Facts
Toothman is the kind of opinion that matters because of what it does not allow. Employers will sometimes treat any arbitration agreement an employee has ever signed as broadly applicable to any future dispute. That is not the law. Arbitration agreements are contracts, and like all contracts, they are limited by their terms.
This case is a useful example of how careful contract analysis can preserve an employee's right to a class action. The court did not invent new doctrine. It simply applied the basic rule that contracts cover what they cover — and a contract between an employee and a staffing agency cannot quietly extend itself to cover years of later, independent work at a different company.
The case also illustrates a point ShortLegal emphasizes in evaluating any arbitration dispute: do not assume that a piece of paper signed years ago controls a current dispute. The legal analysis often turns on facts the employee has never thought about — what entity the employer was at the time, what the contract actually said, what relationship the parties really had, and when the alleged misconduct occurred. The details matter, and they often favor the employee more than the employer wants to admit.
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Read the full arbitration guideFacing a Staffing Agency Arbitration Argument?
If your former staffing agency's paperwork is being used to push your claim out of court, the analysis often turns on details only a lawyer can evaluate. ShortLegal handles motions to compel arbitration, scope-of-agreement disputes, and class action defense work as core practice areas.