Beyond the Contract: Non-Signatories to an Arbitration Agreement Can Compel Arbitration

Departing from the ruling in Soltero v. Precise Distribution earlier this year, the California Court of Appeal in the Second District in Gonzalez v. Nowhere Beverly Hills LLC, created a split of authority regarding an alleged employer’s ability to compel arbitration when they are non-signatories to an arbitration agreement.

The plaintiff in Gonzalez (Edgar Gonzalez) was employed by Nowhere Santa Monica LLC, which operates an Erewhon grocery store and café in Santa Monica. Gonzalez filed a wage and hour class action lawsuit against Nowhere Santa Monica, as well as eight other Nowhere LLCs operating Erewhon grocery stores throughout Los Angeles, and Nowhere Holdco which is their managing member, based on a joint employer theory.

All Nowhere LLCs jointly moved to compel arbitration based on an arbitration agreement between Gonzalez and Nowhere Santa Monica. The trial court granted the motion as to Nowhere Santa Monica, but denied relief to the other Nowhere LLCs on the ground they were not signatories to the arbitration agreement.

In a win for employers, the Court of Appeal reversed.

Plaintiff Can’t Have It Both Ways

The Court of Appeal held that Gonzalez’s claims alleging liability based on a joint employer theory are necessarily intertwined with the employment agreement (including the agreement to arbitrate) between Gonzalez and Nowhere Santa Monica. As such, Gonzalez could not have his cake and it eat too by seeking to hold all Nowhere LLCs liable based on a joint employment theory, while denying the joint employment relationship in order to avoid arbitration.

Based on the Gonzalez decision, in determining the enforceability of an arbitration provision by non-signatories, the focus is on the nexus between the claims against non-signatories and the underlying employment agreement between the direct employer and the plaintiff (whether or not the plaintiff made express reference to a contract).

In other words, this nexus is established from the outset when the plaintiff alleges joint employer liability.

Gonzalez gives employers the ability to compel arbitration per an arbitration agreement when they are brought into a lawsuit based on a joint employer theory, even if they are not signatories to the agreement. The decision may also prevent employees from attempting to circumvent arbitration by suing only alleged joint employers (who did not sign an arbitration agreement), and not their direct employer (who did sign an arbitration agreement), on the now-rejected theory that non-signatories cannot compel arbitration.

Nick Kanter and Ian “Aspen” Ferber-Paxson are employment defense attorneys.