Toothman v. Redwood Toxicology Laboratory, Inc.
The First District holds that a staffing agency’s arbitration agreement does not follow a worker into later direct employment with the client business: the client was not a party or “affiliate,” the claims arose outside the agreement’s scope, and the worker was not equitably estopped — so the client cannot compel arbitration.
Toothman v. Redwood Toxicology Laboratory, Inc. (2026) ___ Cal.App.5th ___ [No. A171567]
Arbitration
Staffing agency
Nonsignatory
Affirmed
In brief. A temporary staffing agency, Apex, hired Robert Toothman in 2018 under an employment agreement and a companion arbitration agreement, then placed him at Redwood Toxicology Laboratory; when his Apex placement ended, Redwood hired him directly, and he later sued Redwood over that direct-employment period. Redwood moved to compel arbitration under the Apex agreement. The Court of Appeal affirmed the denial: Redwood “was not a party to the Arbitration Agreement” — it did not qualify as an Apex “affiliate”; even as a possible third-party beneficiary, the agreement “did not cover claims arising from Toothman’s employment with Redwood”; and Toothman “was not equitably estopped … because his claims were not intertwined with or founded in the Arbitration Agreement.” (Toothman v. Redwood Toxicology Laboratory, Inc. (2026) No. A171567 (slip opn. at pp. 1, 8–18).)
By Jonathan J. Delshad
Draft for review · source-verification pending
Facts
Apex Life Sciences, a temporary staffing agency, hired Toothman in January 2018; he signed an employment agreement and a companion arbitration agreement defining “Company” as “Apex Life Sciences, LLC, a division of On Assignment, Inc., its affiliates, subsidiaries and parent companies,” and agreeing to arbitrate “any dispute arising out of or related to [his] employment with … Company.” (slip opn. at pp. 2, 8.) Apex placed him at Redwood; his Apex employment ended April 23, 2018; two days later he “began working directly for Redwood,” where he stayed until June 2022. (slip opn. at pp. 2–3.) Toothman and Redwood “did not enter into an arbitration agreement.” (slip opn. at p. 2.)
In September 2022, Toothman filed a class action against Redwood alleging Labor Code violations “beginning no earlier than September 26, 2018 — well after he had stopped working for Apex.” (slip opn. at pp. 2–3.) After Apex produced the arbitration agreement in response to Redwood’s subpoena, Toothman amended his class definition to exclude staffed workers during their agency assignments. (slip opn. at p. 3.) Redwood moved to compel arbitration, arguing it was an Apex “affiliate,” a third-party beneficiary, or that Toothman was equitably estopped. (slip opn. at p. 3.)
Procedural history
The trial court denied the motion. (slip opn. at p. 3.) Reviewing de novo on undisputed facts (Pinnacle Museum Tower Assn. v. Pinnacle Market Development (US), LLC (2012) 55 Cal.4th 223, 236), the Court of Appeal affirmed. (slip opn. at pp. 5, 18.) It rejected Redwood’s framing that the FAA required resolving ambiguities in favor of arbitration, explaining that the policy favoring arbitration “is merely an acknowledgment of the FAA’s commitment to … place such agreements upon the same footing as other contracts,” so courts treat arbitration agreements “like other agreements.” (slip opn. at pp. 3–4, quoting Morgan v. Sundance, Inc. (2022) 596 U.S. 411, 418, and citing Fuentes v. Empire Nissan, Inc. (2026) 19 Cal.5th 93, 110.)
Issue
May a client business compel a worker to arbitrate claims arising from the worker’s later direct employment with the client, based on an arbitration agreement the worker signed with a staffing agency during an earlier placement — on the theories that the client is an Apex “affiliate,” a third-party beneficiary, or that the worker is equitably estopped? (slip opn. at pp. 1, 5.)
Holding
Affirmed. (1) As a nonsignatory invoking the agreement, Redwood — not Toothman — “bears the burden to establish [it] is a party to the arbitration agreement … covering the dispute,” and it did not carry that burden. (slip opn. at pp. 6–7, citing Jones v. Jacobson (2011) 195 Cal.App.4th 1, 15.) (2) Redwood was not an Apex “affiliate”; read in context, “affiliates” “take[s] meaning from the company it keeps” — the surrounding “subsidiaries and parent companies,” which “involve common control or ownership” — and an arm’s-length “Client” like Redwood is not such an entity. (slip opn. at pp. 8–14.) (3) Even if Redwood were a third-party beneficiary, the claims “aris[e] out of or relat[e] to” only Toothman’s direct employment with Redwood, which is “outside the Arbitration Agreement’s substantive scope.” (slip opn. at pp. 14–15.) (4) Toothman was not equitably estopped, because his claims are not “dependent upon,” “founded in,” or “inextricably intertwined with” the arbitration agreement. (slip opn. at pp. 16–18.)
Reasoning
1. A nonsignatory bears the burden, not the worker. The court rejected Redwood’s argument that producing the agreement shifted the burden to Toothman to prove unenforceability. The burden-shifting cases involve challenges to an agreement’s “existence, validity, or general enforceability” (fraud, signature authenticity, unconscionability), not a challenge that “the party invoking the agreement was not a signatory.” (slip opn. at pp. 5–7, citing Rosenthal v. Great Western Fin. Securities Corp. (1996) 14 Cal.4th 394, 413.) Under Jones v. Jacobson, a nonsignatory who submits an unsigned agreement “bears the burden to establish he or she is a party … covering the dispute.” (slip opn. at p. 7.)
2. “Affiliate” means common ownership or control. Construing the agreements together (Civ. Code, § 1642) and the term in its “ordinary and popular sense” (§ 1644), the court applied noscitur a sociis: a listed term “takes meaning from the company it keeps,” and reading “affiliates” to include arm’s-length “Clients” would make it “markedly dissimilar” to the neighboring “subsidiaries and parent companies,” which share “common control or ownership.” (slip opn. at pp. 8–10, citing Almond Alliance of California v. Fish & Game Com. (2022) 79 Cal.App.5th 337, 364.) Contemporaneous dictionaries defined an “affiliate” by “shareholdings or other means of control.” (slip opn. at pp. 10–11.) The companion employment agreement separately defined client businesses as “Clients,” and the parties’ choice to use “Clients” in one place and “affiliates” in another confirmed they were not synonyms. (slip opn. at pp. 9, 12.) Reading “affiliates” to capture sibling companies, branches, and divisions made it “a useful catch-all, not a redundancy.” (slip opn. at p. 11.)
3. The agreement’s purpose and terms confirm the limit. The court found further textual confirmation: the employment agreement said the arbitration agreement existed “[t]o facilitate uniformity in the application of th[e] [a]greement to the employees of Agency,” so it “would not serve its stated purpose” for someone hired directly by a client. (slip opn. at pp. 12–13.) The arbitration agreement’s at-will clause referred to the employee’s “assignment,” which Apex “would have no basis” to represent for a client’s own direct hires; and it would be implausible that Apex could “arrogate[] to itself the right to prescribe the dispute resolution procedure” between a client and the client’s own employees, “without notice to the Client.” (slip opn. at pp. 13–14.)
4. Scope: the claims arose after the Apex relationship ended. The court held that even assuming third-party-beneficiary status, the agreement covers only disputes “arising out of or related to” employment with “Company,” and Toothman’s claims concern conduct beginning months after his Apex employment ended. (slip opn. at pp. 14–15, citing Vazquez v. SaniSure, Inc. (2024) 101 Cal.App.5th 139, 142–147 [first-period arbitration agreement did not cover a dispute from a second period of employment].) It therefore declined to decide the beneficiary question. (slip opn. at p. 15.)
5. No equitable estoppel. Equitable estoppel applies only where the plaintiff’s claims are “dependent upon, or founded in and inextricably intertwined with,” the contract containing the arbitration clause. (slip opn. at p. 16, quoting Goldman v. KPMG, LLP (2009) 173 Cal.App.4th 209, 217–218; see Gonzalez v. Nowhere Beverly Hills LLC (2024) 107 Cal.App.5th 111, 118.) Toothman’s claims rest on his direct employment with Redwood, not on the Apex agreements, and his class-definition amendment — “presumably designed to avoid other possible arbitration agreements” — was not an admission that his claims were founded in the Apex agreement. (slip opn. at pp. 16–18.)
Significance
Toothman is an important decision for the common temp-to-hire pattern. It holds that an arbitration agreement a worker signs with a staffing agency does not bind the worker to arbitrate disputes that arise from later direct employment with the client, absent a new agreement. Three points have broad reach: a nonsignatory moving to compel arbitration bears the burden of proving it is a party or beneficiary (it cannot simply produce the agreement and shift the burden); the word “affiliate” in a staffing agreement, surrounded by ownership-and-control terms, will not be stretched to capture arm’s-length client businesses; and, echoing Vazquez v. SaniSure, an arbitration agreement tied to one employment relationship does not reach claims arising from a separate later one. The decision also reflects the post-Morgan/Fuentes principle that arbitration agreements are construed like any other contract, with no thumb on the scale, and is a useful tool for employees resisting a client’s attempt to borrow a staffing agency’s arbitration clause.
Key quotes
“[I]n such instances, the nonsignatory bears the burden to establish he or she is a party to the arbitration agreement/provision covering the dispute.” (Toothman, supra, No. A171567 (slip opn. at p. 7), quoting Jones v. Jacobson (2011) 195 Cal.App.4th 1, 15.)
“The claims in the Complaint thus ‘aris[e] out of or relat[e] to’ Toothman’s employment only with Redwood—not his employment with ‘Company.’ Toothman did not agree to arbitrate these claims with any party, because they are outside the Arbitration Agreement’s substantive scope.” (Toothman, supra, No. A171567 (slip opn. at p. 15).)
Practice pointer
When a client employer moves to compel arbitration using a staffing agency’s agreement, put the burden where it belongs: a nonsignatory must prove it is a party, an intended third-party beneficiary, or that estoppel applies — producing the agreement is not enough. Attack the “affiliate”/“party” theory with noscitur a sociis (the term sits among ownership-and-control words) and the separate defined term “Client.” Independently, anchor your claims to the period of direct employment, after the agency relationship ended, so they fall outside the agreement’s scope under Vazquez and Toothman. And keep your pleadings clean of reliance on the staffing-agency contract to defeat equitable estoppel. Defense counsel, in turn, should secure a fresh arbitration agreement at the point of direct hire rather than assume a prior agency agreement carries over. (slip opn. at pp. 5–18.)
Open questions
Because the claims fell outside the agreement’s scope, the court “need not decide whether Redwood was a third-party beneficiary,” leaving that question for a case in which the disputed conduct does arise during the agency placement. (slip opn. at p. 15.) The court also declined to resolve whether a COVID-era tolling rule could extend claims into the Apex period (the argument was forfeited and, in any event, deemed meritless for estoppel purposes). (slip opn. at pp. 16–17, fn. 3.) More broadly, Toothman does not address a scenario in which a staffing agency and client share common ownership or control — where “affiliate” status might genuinely attach — or one in which the client obtains its own arbitration agreement at direct hire. (slip opn. at pp. 9–14.)