From JDSupra, Richard Reibstein reports on a case in which a commercial cleaning company was given a second chance to convince a court that it was a third party beneficiary of an arbitration agreement between a franchisee and its workers. Richard writes:
COMMERCIAL CLEANING COMPANY GETS SECOND CHANCE TO COMPEL ARBITRATION OF INDEPENDENT CONTRACTOR MISCLASSIFICATION CLASS ACTION. The United States Court of Appeals for the Third Circuit has remanded back to the district court for further consideration a motion to compel arbitration of a class action lawsuit brought by two named plaintiffs that each purchased their own commercial cleaning franchise from Coverall North America, Inc. (CNA) through a “master franchisee,” Sujol, LLC d/b/a Coverall of Southern New Jersey. Both plaintiffs entered into agreements with Sujol, but CNA was not a party to either agreement. The plaintiffs commenced a proposed class action against CNA and Sujol in New Jersey state court, alleging that the companies violated the New Jersey Wage Payment Law (NJWPL) by misclassifying them as independent contractors and making unlawful deductions from their wages.
After the case was removed to federal court, both CNA and Sujol made a motion to compel arbitration under the Federal Arbitration Act. The district court concluded that the incorporation of the American Arbitration Act’s Rules in Silva’s agreement did not satisfy the clarity needed for delegation of questions of arbitrability to an arbitrator because the rules were not clear, at least to an “unsophisticated parties” such as the plaintiffs. The district court also found that the arbitration agreement did not cover NJWPL claims and that CNA could not invoke the arbitration clause because it was not a third-party beneficiary of the agreement with Sujol. On appeal by CNA and Sujol, the Third Circuit disagreed with the district court and found that the incorporation of the AAA Rules in Silva’s arbitration clause constituted clear and unmistakable evidence that the parties agreed to delegate arbitrability. The Third Circuit also vacated the district court’s order that CNA was not a third-party beneficiary of the contract’s arbitration clause, concluding that further discovery was needed as to CNA’s rights in both plaintiffs’ agreements. Richardson v. Coverall North America, Inc., Nos. 18-3393 & 18-3399 (3d Cir. Apr. 28, 2020).