Labor & Employment Law Blog

II.    Outlook Moving Forward Based on the Ruling

The ruling, which the court based on fundamental fairness alongside principles related to the formation and interpretation of contracts, gives employers more ammunition and support to argue that claims alleged against related entities or persons on a theory of joint employer status must be compelled to arbitration.

Plaintiff Edgar Gonzalez sued his former employer, Nowhere Santa Monica, LLC – an organic grocery store chain with locations throughout Los Angeles – as well as nine other related business entities (collectively, the “Nowhere LLCs”). Despite only being directly employed by Nowhere Santa Monica, Mr. Gonzalez nonetheless alleged in his complaint that all ten (total) of the Nowhere LLCs acted as “joint employers,” such that each entity was jointly liable for all ten claims alleged in his complaint. The ten Nowhere LLCs accordingly brought a motion to compel Mr. Gonzalez’s claims to individual arbitration based on the arbitration agreement he had signed as a condition of his employment with Nowhere Santa Monica, and which required him to arbitrate any employment-related dispute.

While the trial court granted the motion as to the claims against Nowhere Santa Monica, it denied the motion as to the remaining nine Nowhere LLCs, since the other nine Nowhere LLCs were non-signatories to the arbitration agreement and had failed to demonstrate Gonzalez’s claims against these entities were intrinsically intertwined with his claims against Nowhere Santa Monica. The nine related Nowhere LLCs appealed.

Relying on the doctrine of equitable estoppel, the Court of Appeal reversed the trial court’s decision, ruling that Gonzalez was obligated to arbitrate his claims on an individual basis against each of the Nowhere LLCs. Indeed, because Mr. Gonzalez agreed to arbitrate his claims against Nowhere Santa Monica, and because his claims against the other Nowhere LLCs was premised upon a joint employer theory that required them to have exercised control over Mr. Gonzalez, it would be unfair if Mr. Gonzalez were able to claim the other Nowhere LLCs’ were non-signatories to his arbitration agreement to preclude enforcement of his agreement to arbitrate, while nonetheless suing them as alleged joint employers who controlled his employment.  Put another way, the court ruled that employees cannot have it both ways when it comes to alleging a joint employment relationship and attempting to avoid arbitration against these alleged joint employers. Either the non-signatory related entities are joint employers and also covered parties to the underlying arbitration agreement, or the related entities are not parties to the arbitration agreement and not alleged joint employers.

• Although Gonzalez is a win for employers, it is important for employers to exercise some caution. In reaching its decision, the Court of Appeal expressly disagreed with the holdings in Jarboe v. Hanlees Auto Group, (2020) 53 Cal.App.5th 539, and Soltero v. Precise Distribution, Inc., (2024) 102 Cal.App.5th 887, which both held that alleged joint employers who are non-signatories to an arbitration agreement cannot compel arbitration based on that agreement. These cases create a split in authority, which plaintiffs’ attorneys will likely seek to exploit to prevent enforcement of arbitration agreements against related entity non-signatories.
• As a preventative measure, employers with multiple related or affiliated business entities should ensure that their arbitration agreements are updated so that they expressly address and cover any potential claims against parent companies, subsidiaries, sister corporations, and other related entities.
• Employers with questions regarding how to craft a compliant, integrated arbitration agreement may contact the authors of this post or their usual employment law counsel at AALRR. 

  This AALRR publication is intended for informational purposes only and should not be relied upon in reaching a conclusion in a particular area of law. Applicability of the legal principles discussed may differ substantially in individual situations. Receipt of this or any other AALRR publication does not create an attorney-client relationship. The Firm is not responsible for inadvertent errors that may occur in the publishing process.

  © 2024 Atkinson, Andelson, Loya, Ruud & Romo