The California Supreme Court recently dealt a difficult blow to clients of staffing agencies when it ruled that a client-hospital could be sued by a temporary nurse who had been placed at the hospital by a staffing agency even though the nurse had already sued—and settled with—the staffing agency. California employers that work with staffing agencies should be aware of the risks posed by this ruling.

Background

Lynn Grande worked as a nurse at Eisenhower Medical Center for one week in 2012. She was employed by a staffing agency, FlexCare LLC, which placed her at the hospital as a temporary employee. The agency and the hospital had a staffing contract that provided the agency would retain “exclusive and total legal responsibility” as her employer. The contract specifically provided the agency would ensure “full compliance with and satisfaction of” the wage and hour laws.

First Bite: Grande Sues Agency

A different nurse (who is unnamed in this action) filed suit against the agency, alleging wage and hour violations. Grande joined the suit as a named plaintiff, and the two nurses sought to represent a class of individuals who worked not only at the hospital but also at the agency’s other placement sites.

The two nurses settled the first lawsuit on behalf of a class that included “all persons who at any time from or after January 30, 2008, through April 8, 2014, were non-exempt nursing employees of [the agency] employed in California.” The settlement provided the agency would pay out no more than $750,000 to the class members.

As a result of the settlement agreement, the trial court entered a judgment that “barred and enjoined” all class members from taking further actions against the “Released Parties.” As defined in the judgment, the “released parties” included the agency and its agents but did not specifically mention the hospital by name.

The hospital wasn’t involved in the settlement agreement or the judgment entered by the court. The agency paid the amounts owed under the settlement agreement.

Second Bite: Grande Sues Hospital

Later, Grande filed a second suit, this time against the hospital. The second lawsuit also alleged wage and hour violations based on the one week she worked there. Whereas the first lawsuit was filed on behalf of nonexempt employees of the agency placed anywhere in the state, the second lawsuit was filed on behalf of nonexempt employees of the hospital placed by any staffing agency, not just by FlexCare.

FlexCare sought to have the suit dismissed on the grounds the hospital was entitled to the benefit of the earlier release and the judgment from the first lawsuit precluded Grande from filing the second lawsuit. The trial court rejected that argument, finding the hospital had not been released in the settlement agreement reached by the plaintiffs and the agency in the first lawsuit. Therefore, the trial court concluded, Grande could pursue her second lawsuit against the hospital.

The hospital and agency appealed the trial court’s ruling, but the appellate court agreed with the trial court, finding the hospital had not been released in the earlier settlement agreement, so Grande could continue to pursue her claims (and those of the other members of the class action) against the hospital. The hospital and agency appealed to the Supreme Court of California.

California Supreme Court Gives Hospital Bitter Pill

The supreme court agreed with the rulings of the lower courts and found Grande could proceed with her claims against the hospital, despite the prior settlement agreement between her and FlexCare.

The court’s decision was based in part on the language of the release in the settlement agreement. Specifically, the claims against FlexCare and all of its related entities, employees, and agents were released. The release did not, however, identify the hospital or a particular group of the agency’s clients. The court found the trial court’s analysis was supported by the evidence presented at trial.

Specifically, the trial court had relied on evidence that the hospital had not been named in the first suit, Grande had not sought to take any discovery (pretrial exchange of evidence) from the hospital, and FlexCare had not sought any financial contribution from the hospital toward the settlement payment.

The California Supreme Court’s decision was also based on the absence of any privity between the hospital and the staffing agency in the first lawsuit. The court explained that for the hospital to prevail on its argument that it had been released by the settlement agreement in the first lawsuit, it had to show that if the suit had not been settled, it would have been bound by the outcome of the lawsuit. The hospital, however, would not have been bound by the outcome of the first lawsuit had Grande and her class action been successful before a jury.

Based on those specific facts, the supreme court upheld the trial court’s decision and allowed Grande to continue her suit against the hospital. Grande v. Eisenhower Med. Ctr. (Cal. S. Ct., June 30, 2022).

Bottom Line

According to the California Supreme Court, “Litigants can specify that their releases extend to staffing agency clients—if that result is intended.” Therefore, litigants should use great care when drafting releases to achieve the intended result.

Molly DiBianca can be reached at Clark Hill PLC in Wilmington, Delaware, mdibianca@clarkhill.com. Molly maintains a legal practice consisting of equal parts litigation and client counseling. Ryan C. McKim can be reached at Clark Hill LLP in Los Angeles, rmckim@clarkhill.com. Ryan’s practice focuses on employment disputes.

The views and opinions expressed in the article represent the views of the authors and not necessarily the official view of Clark Hill PLC or Clark Hill LLP. Nothing in this article constitutes professional legal advice nor is intended to be a substitute for professional legal advice.