California Legal Brief

The Rule of Robert Toothman v. Redwood Toxicology Laboratory, Inc. is that a nonsignatory employer cannot compel arbitration under a temporary employment agency's arbitration agreement when the employee's claims arise exclusively from direct employment with the nonsignatory employer that occurred after the agency employment ended, under circumstances where the arbitration agreement defines "Company" to include only the agency and its affiliates, subsidiaries and parent companies, and the claims do not arise out of or relate to employment with the temporary agency.

Appeal from order denying motion to compel arbitration in Superior Court, Sonoma County.

Defendant Appellant was Redwood Toxicology Laboratory, Inc. — the direct employer who sought to compel arbitration based on an arbitration agreement it did not sign.

Plaintiff Respondent was Robert Toothman — the employee who worked first for a temporary agency (Apex), then directly for Redwood, and brought Labor Code violation claims based exclusively on his direct employment period with Redwood.

The suit sounded in employment law violations under the Labor Code. No cross-claims were described.

The key substantive facts leading to the suit were that Toothman signed an arbitration agreement with Apex Life Sciences, LLC, a temporary employment agency that placed him at Redwood from January 2018 to April 2018. After his Apex employment ended, Redwood hired him directly from April 2018 to June 2022. Toothman then filed a class action against Redwood alleging Labor Code violations occurring during his direct employment period (claims limited to conduct starting no earlier than September 26, 2018, well after he stopped working for Apex).

The procedural result leading to the Appeal: The trial court denied Redwood's motion to compel arbitration and dismiss class claims, ruling that Redwood was not a party to the Arbitration Agreement between Toothman and Apex, even if it could be considered a third-party beneficiary the agreement did not cover claims arising from Toothman's direct employment with Redwood, and Toothman was not equitably estopped from refusing to arbitrate because his claims were not intertwined with the Arbitration Agreement.

The key question(s) on Appeal: 1. Whether Redwood qualified as an "affiliate" of Apex under the arbitration agreement's definition of "Company" as "Apex Life Sciences, LLC, a division of On Assignment, Inc., its affiliates, subsidiaries and parent companies"; 2. Whether Redwood could enforce the arbitration agreement as a third-party beneficiary; 3. Whether Toothman was equitably estopped from refusing to arbitrate his claims.

The Appellate Court held that Redwood could not compel arbitration because: (1) Redwood was merely a "Client" of the temporary agency in an arm's-length contractual relationship, not an "affiliate" involving common ownership or control as contemplated by the agreement's definition of "Company"; (2) even if Redwood were a third-party beneficiary, the arbitration agreement only covered disputes "arising out of or related to employment with Company" and Toothman's claims arose exclusively from his direct employment with Redwood after his agency employment ended; and (3) equitable estoppel did not apply because Toothman's claims were not dependent upon, founded in, or inextricably intertwined with the arbitration agreement or employment agreement with the temporary agency.

The case is inapplicable when the nonsignatory employer has common ownership or control with the temporary agency (making it a true "affiliate"), when the employee's claims arise from or relate to the period of temporary agency employment, when there is an express arbitration agreement between the employee and the direct employer, or when the employee's claims are factually intertwined with or dependent upon the temporary agency employment relationship.

The case leaves open whether a broader definition of "affiliate" in an arbitration agreement might encompass client relationships, whether different contract language could extend arbitration obligations to subsequent direct employment relationships, and the precise boundaries of when employment claims become sufficiently "intertwined" with an arbitration agreement to trigger equitable estoppel.