Arbitration agreements are a valuable tool for California employers to resolve workplace disputes efficiently and to avoid class-action lawsuits. However, enforcing these agreements can be tricky, especially in cases involving multiple parties where not everyone has signed the agreement. A recent decision by the California Court of Appeal offers a win for employers, clarifying that arbitration agreements can sometimes be enforced by third parties who haven’t signed them.
A Case That Changed the Game
In Gonzales v. Nowhere Beverly Hills LLC et al. (“Gonzales”), the plaintiff, a former employee of Nowhere Santa Monica LLC, worked for the Santa Monica location of Erewhon Market, a high-end grocery chain. When hired, he signed an employment agreement that included an arbitration clause.
Despite only working at the Santa Monica store, Gonzales sued not only Nowhere Santa Monica but also nine other affiliated LLCs, claiming they were all joint employers and responsible for violating California labor laws.
The ten LLCs asked the court to move the case to arbitration. The trial court agreed to send the claims against Nowhere Santa Monica to arbitration but denied the request for the other nine entities since they hadn’t signed the arbitration agreement. The nine LLCs appealed.
The California Court of Appeal reversed the decision. It ruled that Gonzales couldn’t argue that the ten entities were joint employers while also claiming the arbitration agreement only applied to one of them. The court allowed all the Nowhere LLCs to enforce the agreement, even though most hadn’t signed it.
New Law Changes Arbitration Discovery
While the Gonzales case is good news for employers dealing with multi-party lawsuits, arbitration in California continues to evolve. Traditionally, arbitration has been popular with employers because it involves less discovery—saving time and money compared to a full court trial. But starting in 2025, Senate Bill 940 (SB 940) will change that.
SB 940 amends California law to give parties in arbitration the same discovery rights they’d have in court. This means both sides can take depositions, request documents and evidence, and issue subpoenas to compel witnesses, including third parties, to testify or produce evidence during arbitration.
These changes make arbitration look more like traditional litigation, potentially increasing costs and time for employers.
What Employers Should Do Now
Taken together, these recent developments highlight the importance of frequently reviewing arbitration agreements to analyze the scope of their coverage. Employers should take this opportunity to update their existing arbitration agreements to specify the entities and claims to be covered. Lastly, when facing a workplace dispute, employers should consult with an experienced employment attorney to determine whether arbitration is the best forum for resolution.
Pauline L. Duong, Esq., is an associate attorney with the law firm of Dunn DeSantis Walt & Kendrick. Pauline’s practice is focused on the representation of businesses and business owners, particularly in employment law. She regularly counsels business owners on state and federal employment law questions and strategies.
Dunn DeSantis Walt & Kendrick provides a broad spectrum of legal services to businesses of all sizes, from small, local start-ups and non-profits to large, national companies.
You can find additional information and resources related to helping business owners and their businesses on the DDWK website.
