Businesses often use workers who are actually employees of staffing companies or other, similar entities, and many times those workers have agreed with the employer to address any employment claims in arbitration. This can cause potential complications if those workers file lawsuits against both entities. In a case favoring arbitrating those claims, even if they involve a non-party to the arbitration agreement, California’s Fourth Appellate District court recently reiterated the rights of such non-signatories to enforce those agreements under both equitable estoppel and agency grounds when the right facts are present.

In Garcia v. Pexco, LLC, No. G052872, 2017 Cal. App. LEXIS 443 (May 16, 2017), Narciso Garcia was hired as an hourly employee by Real Time Staffing Services, LLC in 2011 and he was then assigned to work at Pexco, LLC. The employment application Garcia filled out when he was hired by Real Time contained a broadly-worded arbitration agreement in which he agreed to arbitrate virtually every employment claim he could conceivably have against Real Time, including those arising under federal and state employment laws and regulations. Pexco was not a signatory to the agreement.

In 2014, Garcia filed a lawsuit against several defendants, including Real Time and Pexco, for violations of the California Labor Code and unfair business practices regarding the payment of wages. All the complaint’s pertinent allegations and causes of action were made against “All Defendants,” with no distinction between Real Time and Pexco. Those defendants both moved to compel arbitration, which the trial court granted and Garcia appealed.

The appeals court began its analysis by stating that even though there is a strong federal policy favoring arbitration agreements, the general rule remains that one must be a party to such an agreement to be bound by it or to enforce it. However, it noted that courts recognize certain exceptions to the general rule, including equitable estoppel. Under that principle, a non-signatory can invoke an arbitration clause to compel a signatory to arbitrate when the causes of action against the non-signatory are “intimately intertwined with” the underlying contract obligations.  Garcia argued that because his claims were statutory, they did not sound in contract and therefore could not be deemed part of the arbitration agreement. The court disagreed, noting that a claim can “arise out of” a contract without itself being a contractual claim. It stated that all Garcia’s claims were “rooted in his employment relationship with Real Time;” that the arbitration agreement expressly included statutory wage and hour claims; and that the complaint did not distinguish between Real Time and Pexco in any way. It then stated, “Garcia cannot attempt to link Pexco to Real Time to hold it liable for alleged wage and hour claims, while at the same time arguing the arbitration provision applies to Real Time and not to Pexco.” As such, it determined that Garcia was equitably estopped from refusing to arbitrate his claims against Pexco and affirmed the trial court’s ruling.

The court further noted that Pexco could also enforce the arbitration agreement under the agency exception. Under that exception, a non-signatory can enforce an arbitration agreement when a plaintiff alleges that a defendant acted as an agent to a party to the agreement. The court determined that because Garcia had alleged in the complaint that Real Time and Pexco were “joint employers” and alleged identical conduct by both parties without distinction, they were agents of one another in their dealings with Garcia and Pexco could therefore enforce the agreement under the agency exception.

Companies that use workers who are actually employed by another entity, should, in the event of a lawsuit based on employment claims, determine whether those claims are subject to an arbitration agreement and, if so, seek to enforce it as a non-signatory under an exception to the general rule.

As attacks on the use of non-competition provisions roll on nationwide, choice-of-law provisions in those agreements will likely come under even closer scrutiny. A recent Sixth Circuit decision however, determined that such a choice-of-law provision was valid, even though the law chosen by the parties was far more favorable to enforcement of such provisions than was the state’s that had the closest relationship with issues in the lawsuit. In Stone Surgical, LLC v. Stryker Corporation, Nos. 16-1434/1654, 2017 U.S. App. LEXIS 9031 (6^th Cir. May 24, 2017), the Sixth Circuit affirmed the judgment of the Western District of Michigan upholding the validity of both a non-compete agreement and a choice-of-law provision contained in that agreement, even though the chosen Michigan law favored the enforcement of non-competes while the state with the most significant relationships to the transaction and the parties, Louisiana, has far more restrictive non-compete law.

Christopher Ridgeway was employed as a sales representative for Stryker, a Michigan based corporation, from 2001 to 2013, where he sold medical device products in his Louisiana-based territory. Stryker’s original employment offer was contained in a 16-page letter that included, among other things, an offer letter, a form non-compete agreement used for all employees, which contained a one-year non-compete clause, a non-disclosure clause and a non-solicitation clause. It also had a Michigan choice-of-law clause and a Michigan forum-selection clause. His employment was contingent on his signing and returning the documents, which he did. As will be seen, the choice-of-law provision was more pivotal than it appears at first glance because Michigan law liberally favors enforcing non-competes and Louisiana law severely restricts such enforcement.

In 2013, Ridgeway began considering going to work for Biomet, a Stryker competitor. He claimed that he asked Stryker’s HR director whether a non-compete agreement was in his file and was told several times one was not. He claimed that based on that representation, he began talking to Biomet about employment opportunities. Not surprisingly, Stryker’s version of the story was quite different. It claimed that it never told Ridgway that no non-compete existed and asserted that the conversations with Stryker regarded his inquiry about whether he had signed a new non-compete to receive stock options associated with a 2012 promotion to district sales manager, not his original non-compete. Stryker argued that its HR director told Ridgeway that she saw no new non-compete in his file and then followed up that conversation with an email titled “Stock.” Moreover, Stryker argued that all its employees were required to sign non-competes or they would not be hired so that it was impossible that he would not have signed one.

When Stryker discovered that Ridgeway was considering a move to Biomet, it fired him and in the termination letter reminded him of his obligations outlined in the various agreements, which apparently had no effect on his choosing to go to work with Biomet. Soon thereafter, Stryker sued Ridgeway in the Western District of Michigan claiming breach of contract, breach of fiduciary duties and misappropriation of trade secrets. Ridgeway counterclaimed, alleging fraud under Louisiana law and also moved to dismiss for lack of personal jurisdiction, which the trial court denied based on the forum-selection cause in the non-compete agreement. While that suit was pending, his company, Stone Surgical, filed suit in the Eastern District of Louisiana against Stryker and that action was transferred to the Western District of Michigan and consolidated with the original case. After consolidation, Stryker moved for a preliminary injunction. While that motion was denied, the actions effectively ended the relationship with Biomet and Ridgeway due to Biomet’s fear of liability.

The case was eventually tried to a jury, which returned a verdict in Stryker’s favor on all its claims, awarded it $745,195.00 in damages and denied any relief on Ridgeway’s counterclaims. Ridgeway and Stone Surgical appealed, challenging the forum-selection clause, the court’s exercise of personal jurisdiction over him and the choice-of-law provision.

The appeals court quickly disposed of the challenge to the forum-selection clause and personal jurisdiction issues because it determined that the forum-selection clause was valid under Michigan law and that by signing the agreement containing that clause, Ridgeway consented to personal jurisdiction in a Michigan court.

As to the choice-of-law provision, the court began its analysis by stating that Michigan law looks to the Restatement (Second) of Conflicts of Law, specifically section 187, when resolving choice of law issues. That section states, in pertinent part, that the law chosen by the parties will be applied “unless the application of the law of the chosen state would be contrary to a fundamental policy of a state which has a materially greater interest than the chosen state in the determination of the particular issue and which, under the rule of § 188, would be the state of the applicable law in the absence of an effective choice of law by the parties.” (emphasis added). As such, the court determined that its analysis had to start by determining whether, absent the choice-of-law provision in the Stryker agreement, another state’s law would apply, by taking into consideration the place of contracting, the place where the contract was negotiated, the place of performance, the location of the subject matter of the contract and the domicile, residence, nationality, place of incorporation and place of business of the parties.

Analyzing the specific facts of the case, the court could not determine the place of contracting or the place of negotiation. It stated that the place of performance and location of the subject matter favored Louisiana and that the final prong did not favor either state. As such, it determined that the state with the most significant relationship to the transactions and the parties was Louisiana but it went on to state that the inquiry also required it to determine whether Louisiana had a “materially greater interest than the chosen state in the determination of the particular issue.” (emphasis in original). It noted that Stryker was a Michigan corporation with its headquarters and management centered there, that Michigan had a strong interest in protecting its businesses from unfair competition and that Ridgeway’s breach of the non-compete agreement would cause Stryker economic loss, which Michigan had an interest in preventing. Taking these issues into consideration, the court determined that Louisiana’s interest in protecting its citizen from unfair non-compete clauses was not materially greater than Michigan’s interest in protecting its businesses from unfair competition. As such, it determined that the choice-of-law provision was valid and properly applied by the trial court and let the jury verdict stand.

In light of this ruling, and the continued questioning of the use of non-competition agreements, those employers that have not chosen to include a choice-of-law provision should probably re-examine that decision.

The Sixth Circuit Court of Appeals recently ruled that a Vanderbilt University medical professor had not proven that she was treated less fairly because of her gender and upheld the district court’s summary judgment in Vanderbilt’s favor based on its determination that she had failed to identify suitable male comparators and because she failed to make out a prima facie case of gender discrimination.

In Simpson v. Vanderbilt University, No. 16-5381 (6th Cir. May 22, 2017), plaintiff Jean Simpson was a professor in the Vanderbilt Medical School and was employed by the medical school and the Vanderbilt Medical Group. While she was employed, she started, ran and solicited clients for her own private medical practice, actions which Vanderbilt believed were in violation of its conflicts of interest policy, among other policies. After trying unsuccessfully to resolve the matter, Vanderbilt terminated her employment and she filed suit alleging violations of both Title VII of the Civil Right Act and the Tennessee Human Rights Act because of her gender. As noted, the district court granted summary judgment to Vanderbilt and Simpson appealed.

Dr. Simpson began her employment at Vanderbilt in 1997 and at the time of her termination, she was a full-time faculty member in the Division of Anatomic Pathology, which formerly included a dedicated breast pathology consult service. That dedicated service was eliminated in 2012 and general surgical pathology took over the practice. While the reorganization was still pending, Simpson began her own company, Breast Pathology Consultants, Inc. (“BPC”), which provided services that were virtually identical to the dedicated breast pathology consult service, and without Vanderbilt’s knowledge, began actively soliciting pathologists for whom she had previously provided services offering them services through her company. During this time, she continued to be a Vanderbilt employee but from February 2012 through October 2013, she collected nearly $250,000 in fees through her company in addition to her Vanderbilt salary.

In the summer of 2012, Vanderbilt discovered Simpson’s arrangement with BPC, and over the next year repeatedly informed her that she was violating the medical group’s conflict of interest policy, among other things, and demanded that she cease her work through BPC or face possible disciplinary action, including termination. She eventually filed an updated conflict disclosure form in which she disclosed her work with BPC but she otherwise denied that her activities conflicted with Vanderbilt and claimed that several male colleagues had engaged in similar activity and were allowed to maintain their outside practices.

Vanderbilt appointed a faculty committee that investigated the claims and determined that Simpson’s conduct violated the conflict of interest policy and also constituted neglect of duty. It recommended that Simpson be fired for cause and be forced to return the payments she received through her outside business. She was offered the option of resigning in lieu of termination if she paid Vanderbilt the funds she earned from her business, which she refused to do. After she was terminated for cause, she filed her lawsuit alleging violations of both Title VII and the Tennessee Human Rights Act based on gender discrimination. The district court granted summary judgment in favor of Vanderbilt because it determined that she failed to make out a prima facie case under the McDonnell Douglas burden-shifting framework and that even if she had, she failed to demonstrate that the stated reason for her termination was a pretext.

In reviewing the district court’s ruling, the Sixth Circuit first noted that to make out a prima facie case under McDonnell Douglas, a plaintiff must demonstrate that: 1) she is a member of a protected class; 2) she was subjected to an adverse job action; 3) she was qualified for the position; and 4) similarly situated male employees were treated more fairly. Because the parties agreed that she met the first three criteria, the appeals court confined its analysis of the district court’s ruling to addressing the “similarly situated” prong. It stated that in order for a person to be considered a similarly situated comparator, Simpson needed to prove that all the relevant aspects of her employment situation were “nearly identical” to those of the cited male employees. As an example, it stated that “similarly situated” in an employment context means that comparators must have dealt with the same supervisor, been subjected to the same standards and have engaged in similar conduct without differentiating or mitigating circumstances.

Dr. Peter Donofrio, the comparator that Simpson attempted to use, worked briefly for the “Best Doctors” website while he was a Vanderbilt employee and disclosed that work on his 2011 conflict of interest form. After he disclosed this work, Vanderbilt instructed him to cease his engagement with the website. While he initially complied, he resumed his work with Best Doctors in 2012, which Vanderbilt learned about during discovery in this matter. Vanderbilt conducted a disciplinary review as a result and while he was not terminated, he was required to pay $122,000 in fees to Vanderbilt and was put on two-years’ probation. As such, the court determined that his case was clearly different from Simpson’s since at a minimum, Dr. Donofrio ceased working when confronted and paid back the tainted earnings. The court further found that the additional male doctors she referenced were also not similarly situated because they had primarily been granted permission by Vanderbilt, after disclosure, to earn outside income as they transitioned either to retirement or private practice.

Based on the above, the Sixth Circuit affirmed the trial court’s summary judgment decision as it agreed that Simpson had failed to meet the fourth McDonnell Douglas factor.

In Philpott v. State of New York, No. 16 CIV 6778 (AKH) (S.D.N.Y. May 3, 2017) (order granting in part and denying in part defendant’s motion to dismiss), an ongoing case in the Southern District of New York that bears following as it progresses, a federal judge ruled that the plaintiff’s claim for sexual orientation discrimination was cognizable under Title VII of the Civil Rights Act of 1964, 42 U.S.C. § 2000e, et seq. (“Title VII”), and therefore, could proceed.

Philpott is a former Vice President of Student Affairs at SUNY’s College of Optometry who filed this case against the state of New York, the University of the State of New York and State University of New York claiming that he was discriminated against and harassed on the basis of his sexual orientation under both Title VII and Title IX of the Education Amendments of 1972, 20 U.S.C. § 1681, et seq. (“Title IX”) and chemical dependence under the Americans with Disabilities Act and that he was terminated shortly after he made those complaints. The gist of Philpott’s discrimination claim was that over a period of several years, the president of SUNY Optometry, and one of plaintiff’s co-workers 1) made a range of discriminatory comments directed at him; 2) excluded him from meetings and projects because of his sexual orientation; and 3) when he finally complained about this discrimination, his employment was terminated shortly thereafter. Defendants filed motions to dismiss and prior to the court’s decision, plaintiff dismissed all the defendants except SUNY and also dismissed his ADA claim. As such, the court needed to determine whether he had cognizable claims under Title VII and/or Title IX against SUNY and, if he did, whether he had stated a plausible claim.

As to any possible claim under Title VII, Judge Hellerstein first noted that while the Second Circuit has held that that title does not prohibit discrimination based on sexual orientation, in a March 27, 2017 decision in Christiansen v. Omnicom Grp., Inc., 852 F.3d 195 (2d Cir. 2017), the Second Circuit held that though a sexual orientation discrimination claim was not cognizable under Title VII, “a claim based on the gender stereotyping theory of sex discrimination” was. Judge Hellerstein went on to point out that in Christiansen, two of the three judges joined in a concurring opinion that he said, “persuasively outlines why sexual orientation discrimination is a form of sex discrimination and should therefore be cognizable under Title VII.” Essentially, the Christiansen concurrence stated that sexual orientation is sex discrimination because “it treats otherwise similarly-situated people differently solely because of their sex” because “sexual orientation cannot be defined or understood without reference to sex.” The concurrence went on to say that “such discrimination is inherently based on gender stereotypes.”

Judge Hellerstein then noted that on April 4, 2017, the Seventh Circuit, in an en banc decision in Hively v. Ivy Tech Cmty. Coll. of Indiana, 853 F.3d 339 (7th Cir. 2017) (en banc), became the first federal circuit court of appeals “to unequivocally hold that ‘discrimination on the basis of sexual orientation is a form of sex discrimination’ and therefore cognizable under Title VII.” The Hively court stated that it was compelled to make that determination by “the common-sense reality that it is actually impossible to discriminate on the basis of sexual orientation without discriminating on the basis of sex.” Based on the Christiansen concurrence and the Seventh Circuit’s decision in Hively, the court determined that Philpott’s allegations in the complaint had stated a claim for gender stereotyping discrimination, even though he had framed his complaint in terms of sexual orientation discrimination.

The court did, however, dismiss Philpott’s claims under Title IX because it held that the remedies available under Title IX are limited to student plaintiffs and do not extend to employment discrimination claims.

Obviously, this case bears following as it progresses, especially considering the Seventh Circuit’s decision in Hively.