Labor & Employment Law Daily Wrap Up, ARBITRATION—N.D. Cal.: Staffing agency not entitled to compel arbitration of claims of ‘bait-and-switch’ practices, (Jan 9, 2025)

By Ronald Miller, J.D.

The plaintiffs filed a class action complaint alleging that the staffing agency engaged in “bait-and-switch” practices requiring traveling nurses to accept pay decreases or face termination.

A federal district court in California denied an employer’s motion to compel traveling nurses to arbitrate their claims that a staffing agency engaged in “bait-and-switch” practices. According to the employees, after they committed to work assignments, the agency demanded that they either accept pay decreases or face termination. The employer moved to compel arbitration of those claims. Here, the court concluded that the plaintiffs faced undue time pressure in their consideration of Professional Services Agreements that contained the arbitration provision. Moreover, the court concluded that a fee-shifting provision in the PSAs was unconscionable (Pappas v. AMN Healthcare Services, No. 24-cv-01426-JST (N.D. Cal. Jan. 8, 2025)).

Traveling nurses. The employer is a nationwide provider of temporary healthcare staffing solutions, and it places healthcare professionals, like traveling nurses, in temporary assignments at facilities. It contracts with healthcare facilities that employ traveling nurses to fill certain staffing needs. The employer uses recruiters who pitch traveling nurses on new job opportunities.

The plaintiffs in this action are traveling nurses. The staffing agency recruited them and verbally communicated: “(1) a description of the assignment, including the location of the assignment, length of assignment, and total compensation; and (2) the potential repercussions associated with a nurse cancelling the assignment, including potentially being blacklisted from working at AMN or the hospital.”

“Take-it-or-leave it” demands. All the plaintiffs accepted a travel assignment from the staffing agency to relocate and work at a Kaiser Foundation Hospital located in California. After the plaintiffs committed to an assignment and began work, the staffing agency gave them “take-it-or-leave it” demands that they accept pay decreases or face termination.

Class action. On March 8, 2024, the plaintiffs filed a class action complaint alleging that the staffing agency “knowingly engag[ed] in ‘bait-and-switch’ practices and perpetrat[ed] fraud on travel nurses in a quest for profit and market share.” According to the plaintiffs, the staffing agency’s “take-it-or-leave-it” demands to accept less pay or be terminated violated the California Labor Code and California’s Unfair Competition Law and gave rise to claims for breach of contract, breach of the covenant of good faith and fair dealing, promissory estoppel, fraudulent inducement, fraudulent concealment, and negligent misrepresentation. The plaintiffs additionally sued Kaiser for inducing breach of contract and for tortious interference with contractual relations.

Arbitration provision. Prior to their start date, the staffing agency required each plaintiff to sign and acknowledge a form employment agreement called a Professional Services Agreement (PSA) to begin work. The PSA contained a provision entitled “Arbitration of Disputes,” in which the parties mutually consented to the resolution of disputes by arbitration.

Motion to compel. The staffing agency moved to compel arbitration of the plaintiffs’ claims under the PSA. The plaintiffs did not contest the existence of the arbitration agreement or that their individual claims fall within the scope of that agreement. Rather, they opposed the motion on the grounds that the arbitration agreement was unconscionable and therefore unenforceable.

Unconscionability. Under California law, “the core concern of unconscionability doctrine is the absence of meaningful choice on the part of one of the parties together with contract terms which are unreasonably favorable to the other party.”

The plaintiffs first argued that the arbitration provision was procedurally unconscionable because it was contained in a contract of adhesion. Because the plaintiffs’ offers of employment were contingent on signing the PSAs, which are standard form contracts drafted by the staffing agency, the arbitration agreement amounted to a contract of adhesion. However, under California law, a contract of adhesion is not “per se unconscionable.”

Time pressure. Beyond the contract itself, courts may consider additional circumstances such as: (1) the amount of time the party is given to consider the proposed contract; (2) the amount and type of pressure exerted on the party to sign the proposed contract; (3) the length of the proposed contract and the length and complexity of the challenged provision; (4) the education and experience of the party; and (5) whether the party’s review of the proposed contract was aided by an attorney.

Here, the plaintiffs argued that the court should find additional oppression factors for two reasons: (1) the staffing agency placed them under significant time pressure to accept the PSA such that they did not have time to have an attorney review the terms; and (2) that it failed to attach the JAMS rules.

The court found that the evidence supported the plaintiffs’ contention that they were placed under significant time pressure to accept the PSA. While many of the plaintiffs received the PSAs between 20 and 30 days before they started work, almost all of them signed the PSA within one day or less of receiving it. This supported their allegation that recruiters told them they must sign the PSA immediately. Thus, the court found that the plaintiffs faced undue time pressure in their consideration of the PSAs, and that was evidence of oppression.

Arbitration rules. With regard to the staffing agency’s failure to attach the JAMS rules, the court agreed with it that the plaintiffs cannot maintain a claim of procedural unconscionability unless they also allege that there was something substantively unconscionable about the unidentified rules, which they have not done. Because the plaintiffs did not identify how the JAMS rules were substantively unconscionable, their argument regarding the staffing agency’s failure to provide those rules failed.

Unfair surprise. Next the court reviewed whether there was unfair surprise that resulted in procedural unconscionability. The plaintiffs argued that surprise was present here because the arbitration “provision is permeated with confusing legal jargon that is indecipherable to a layperson.” Specifically, the plaintiffs take issue with the cost-shifting language of the arbitration clause in the PSA.

Here, it was not clear that the plaintiffs would have had any idea what it means for an arbitrator to apply “the law for the shifting of costs and fees that a court would apply to the claim(s) asserted.” Therefore, the court found that the “cost-splitting provision, coupled with the choice-of-law provision, makes it difficult (even for a lawyer) to figure out whether [plaintiffs] would have to pay half the arbitration costs or not.” Thus, the provision created “some surprise” which added to the procedural unconscionability of the agreement.

Substantive unconscionability. Next, the plaintiffs argued the PSA was substantively unconscionable because it required employees potentially to pay the employer’s attorneys’ fees or and costs. The court concluded that while the PSA displayed a moderate degree of procedural unconscionability, it contains a high degree of substantive unconscionability, rendering the PSA unconscionable.

The case is No. 24-cv-01426-JST.

Judge: Tigar, J.

Attorneys: Larkin E. Walsh (Stueve Siegel Hanson) for Jean Pappas, Johannah Hetherington, and Nicole Domke. Anthony David Sbardellati (Akerman) for AMN Healthcare Services, Inc., Kaiser Foundation Health Plan, Inc., and Kaiser Foundation Hospitals.

Companies: AMN Healthcare Services, Inc.; Kaiser Foundation Health Plan, Inc.; Kaiser Foundation Hospitals

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