Tell me if you have heard this one before: ten companies are sued by a former employee as “joint employers”, even though the employee technically worked for, and signed a binding arbitration agreement with, only one of them.  The employers then move to compel arbitration and the employee opposes the motion.  The trial court grants or denies the motion to compel and the losing party (or parties) appeal(s).  If this sounds familiar, it is because there are no less than six published appellate court decisions have come down in recent years that have wrestled with the issue of whether joint employers who were not signatories to an arbitration agreement with a plaintiff employee can compel arbitration.

            Recently, the Court of Appeal in Gonzalez v. Nowhere Beverly Hills LLC not only took up the mantle of once again addressing the question, but it also attempted to resolve the clear split in authority on the issue.  In Gonzalez, the employee signed a binding arbitration agreement with his direct employer, Nowhere Santa Monica.  The agreement made no mention of the other nine Nowhere-related entities.  The employee then sued all ten entities as “joint employers” for various wage and hour claims.  However, “the complaint, a 20-page block of unbroken, nondescript boilerplate, mentioned no employment agreement, described no work performed or control exerted over such work, and made no distinction between any of the ten defendants.”  All ten defendants filed Motions to Compel Arbitration, but only Nowhere Santa Monica’s motion was granted on the basis that a valid and binding agreement existed only between it and the former employee.

            The remaining nine entities appealed, asserting “equitable estoppel.”  In the arbitration context, this means that, “a signatory to an agreement with an arbitration clause cannot … ‘on the one hand, seek to hold the non-signatory liable pursuant to duties imposed by the agreement [i.e., the terms and conditions of an employer], which contains an arbitration provision, but, on the other hand, deny arbitration’s applicability because the defendant is a non-signatory.”  The Court of Appeals agreed with the defendants’ theory.  In comparing and contrasting six different preceding cases, the court in Gonzalez determined that the former employee’s claims were founded in, and inextricably intertwined with, the employment and arbitration agreements entered into at the beginning of his employment.  It would have been inequitable for the former employee to impose liability on the related entities based on a joint employer theory while denying that a joint employment relationship did not also apply to arbitration.

            There must be a nexus between the claims against the non-signatories and the underlying employment agreement between the plaintiff and the employer named in the agreement, regardless of which entity expressly signed the arbitration agreement. In Gonzalez, a clear nexus existed because the plaintiff alleged a joint employer liability theory from the outset.

            Gonzalez provides a rare win for employers in California. Even so, it is imperative to have up to date arbitration agreements that include intended third-party beneficiaries in order to minimize the risk of challenge when these non-signatory entities attempt to enforce the terms of such an agreement.

This publication is published by the law firm of Ervin Cohen & Jessup LLP. The publication is intended to present an overview of current legal trends; no article should be construed as representing advice on specific, individual legal matters. Articles may be reprinted with permission and acknowledgment. ECJ is a registered service mark of Ervin Cohen & Jessup LLP. All rights reserved.