A recent court decision brings encouraging news for employers. In Gonzalez v. Nowhere Beverly Hills LLC, the court determined that employees cannot avoid contractual arbitration with companies who are related to their employer, such as subsidiaries or affiliates, if their claims are closely linked to their employment with the entity with which they signed an arbitration agreement. (Gonzalez v. Nowhere Beverly Hills LLC (Dec. 3, 2024, No. B328959) ___Cal.App.5th___.) Accordingly, if an employee signs an agreement to arbitrate employment disputes with their employer, that agreement can also apply to related non-signatory companies under certain conditions.
Case Background: The Facts Behind the Dispute
Plaintiff Edgar Gonzalez worked for Nowhere Santa Monica at its Erewhon grocery store for approximately five months. When he was hired, Gonzalez signed an agreement stating that any work-related disputes with Nowhere Santa Monica would be handled through arbitration on an individual basis.
After his employment ended, Gonzalez filed a wage and hour class action lawsuit against Nowhere Santa Monica and nine related companies who operated other Erewhon grocery stores. He claimed they were all his employers under a joint employment theory and accused them of violating various California Labor Code provisions. Thereafter, Nowhere Santa Monica and the related companies filed a joint motion to compel Gonzalez to arbitrate his claims on an individual basis and to dismiss his class claims. The trial court granted the motion to compel individual arbitration with Nowhere Santa Monica, but denied it as to the other entities, finding there was no evidence that Gonzalez’s claims against them were “intimately founded in and intertwined with” his arbitrable claims against Nowhere Santa Monica. The related companies appealed the trial court’s decision.
The Appellate Court’s Decision
The Court of Appeal overturned the trial court’s decision, ruling that Gonzalez’s claims against the related companies were closely tied to his employment with Nowhere Santa Monica. The Court explained that Gonzalez could not claim the related companies were joint employers to hold them liable while simultaneously denying that a joint employment relationship did not also apply to arbitration. The Court emphasized that the key factor in enforcing the arbitration agreement was the clear connection between the claims against the related companies and the underlying arbitration agreement between Gonzalez and Nowhere Santa Monica, regardless of which entity signed the arbitration agreement. This connection was clear because Gonzalez alleged that the related companies were joint employers. Furthermore, Gonzalez’s wage and hour claims were for causes of action that can only be brought against an employer, not a non-employer entity.
This decision highlights how arbitration agreements can help reduce the impact of litigation. Employers who have not already implemented arbitration agreements should consult with their Cook Brown attorney to consider doing so. And, as helpful as the Gonzalez decision is, employers who already have such agreements in place should review and update them, where applicable, to specifically include claims against parent companies, subsidiaries, sister corporations, and other related entities in order to avoid the same type of dispute.
