Arbitration Agreement Enforceable By Non-Signatory Alleged Joint-Employers

Seyfarth Synopsis: Employees who sign an arbitration agreement with one company cannot avoid arbitration with related defendant-companies by arguing they were not parties to the agreement. The California Court of Appeal held that claims against related defendant-companies that are closely tied to the arbitration agreement cannot not be separated for litigation. Edgar Gonzalez v. Nowhere Beverly Hills LLC, B328959.

The Facts

Edgar Gonzalez worked at a grocery store (Erewhon) operated by Nowhere Santa Monica LLC (Nowhere). As a condition of Gonzalez’s employment, he signed an arbitration agreement with Nowhere.

Gonzalez sued Nowhere, and nine related companies (Nowhere Entities), alleging they acted as “joint employers,” and were collectively responsible for wage and hour violations.

Trial Court Decision

Gonzalez admitted the arbitration agreement applied to Nowhere, but argued it did not apply to the Nowhere Entities since they were not parties to the agreement.

The trial court granted Nowhere’s motion to compel arbitration. However, the trial court denied the motion as to the Nowhere Entities, reasoning that (1) they were not signatories to the agreement, and (2) there was insufficient evidence to show that Gonzalez’s claims against the Nowhere Entities were tied to the arbitration agreement. Therefore, Gonzalez was allowed to proceed with his lawsuit against the remaining entities in court.

After the trial court granted Nowhere’s motion to compel arbitration, Gonzalez dismissed Nowhere from the case, electing to proceed solely against the Nowhere Entities.

Appellate Court Decision

The California Court of Appeal for the Second Appellate District reversed the trial court, holding that Gonzalez’s claims against the Nowhere Entities should have also been compelled to arbitration. The Court of Appeal concluded that Gonzalez’s claims against the Nowhere Entities were “intimately founded in and intertwined with” the arbitration agreement he signed with Nowhere. By arguing that Nowhere and the Nowhere Entities were “joint employers,” Gonzalez tied the latter’s liability to his employment relationship with Nowhere, which was governed by the arbitration agreement. In reaching its conclusion, the Court of Appeal relied on the principle of equitable estoppel. Gonzalez could not claim the Nowhere Entities were joint employers for purposes of liability, while simultaneously arguing these entities’ non-signatory status precluded arbitration of the claims against them.

The Court of Appeal criticized the First Appellate District’s decision in Jarboe v. Hanlees Auto Group, 53 Cal. App. 5th 539, 554 (2020), in which the First District rejected the argument that non-signatories to an arbitration agreement could compel arbitration. Rather, the Court of Appeal concluded that the Third and Fourth Districts had correctly decided the issue in Garcia v. Pexco, LLC, 11 Cal. App. 5th 782 (2017), and Soltero v. Precise Distribution, Inc., 102 Cal. App. 5th 887 (2024). In these cases the courts concluded that equitable estoppel permitted non-signatory defendants, alleged to be joint employers, to enforce arbitration agreements when the claims were based on the plaintiff’s employment.

What Gonzalez Means for Employers

This decision is an important reminder that arbitration agreements can protect non-signatory related entities when the claims against them are based on an alleged joint-employment relationship. Entities facing such claims should evaluate whether the allegations are sufficiently connected to an existing arbitration agreement with a related entity to warrant compelling the matter to arbitration.

Although Garcia is positive for entities alleged to be joint-employers that are seeking to compel arbitration, the apparent split between California’s appellate districts on this issue makes it highly likely that the California Supreme Court will decide to hear the issue if review is sought.