Can Retailers Now Benefit From Other Joint Employers’ Arbitration Clauses?

Much has been written — including by me in this publication one year ago — about the National Labor Relations Board’s (NLRB) 2023 attempt to make it easier for two companies to be considered joint employers. Instead of requiring one company to have direct and significant control over a worker, the new rule would have classified them as joint employers if they could potentially control the worker in any way — even if they don’t actually use that control. While the federal courts struck down this effort to rethink the joint employment standard, it now appears the pendulum may be swinging in the other direction as it relates to the beneficiaries of arbitration agreements. As a result, retailers operating under a joint employment structure should take a fresh look at their employment agreements.

Let’s take a step back and assume there are two “joint employers” of an employee. As an easy example in the retail setting, say that an employee works directly for the retailer, but a parent company — perhaps a franchisor — holds that employee to certain standards and controls the quality of the employee’s work. In this case and many others that arise in the industry, two employers exercise actual, substantial, direct and immediate control over an employee and thus are joint employers.

However, the reality is that the employee may only have an employment agreement — with an arbitration clause — with one of the employers. Without having an executed employment agreement with the secondary joint employer, the employee would not be subject to arbitration. Or would they?

Related story: Retail Industry Hit by New Labor Relations Rules

A recent district court case in California, Gonzalez v. Nowhere Beverly Hills LLC et al., held that such an employee — a grocery store worker — would be subject to arbitration. In the case, there were 10 related “Nowhere” LLCs operating grocery stores around California. The plaintiff worked for one of the entities directly, Nowhere Santa Monica, and had a signed employment agreement with an arbitration clause that specified Nowhere Santa Monica as the employer. However, the plaintiff brought a class-action against all 10 LLCs, claiming their failure to pay minimum and overtime wages, failure to provide meal or rest breaks, and failure to provide timely wages and accurate wage statements, among several allegations. All Nowhere LLCs filed a joint motion to dismiss the class claims and to compel arbitration.

The nine non-Santa Monica Nowhere entities admitted that the plaintiff had never worked at their stores, nor was there any existing arbitration agreement between the plaintiff and those entities. Instead, they relied solely on the arbitration agreement between the plaintiff and Nowhere Santa Monica. The trial court compelled arbitration concerning Nowhere Santa Monica but denied the motion with respect to the other nine Nowhere LLCs. All of the Nowhere LLCs appealed.

The appellate court reversed and held that equitable estoppel prevented the plaintiff from avoiding arbitration with respect to the other nine Nowhere LLCs.

Notably, this holding comes out of California, not a state typically known as pro-employer. Regardless, it's an incredibly interesting holding related to joint employment. That said, relying solely on the nexus created by one arbitration agreement is probably not the best strategy. Instead, explicitly including any related entities who should be covered by the arbitration agreement in the arbitration agreement is the strongest way to ensure arbitration can be compelled. However, even if the arbitration agreement isn’t completely clear on which entities are covered, there now appears to be an argument that the arbitration agreement still covers joint employers. The implications for joint employers are obvious: that arbitration remains accessible even if there is not a direct arbitration agreement between the joint employer and the employee.

For retailers operating across multiple entities, the Gonzalez decision presents a crucial opportunity to strengthen arbitration strategies. While the best approach remains explicitly naming all related entities in arbitration agreements, this ruling provides a potential safeguard when such clarity is lacking. Given the retail industry’s reliance on complex employment structures, now is the time for retailers to assess their contracts, consult legal counsel, and proactively refine their dispute resolution frameworks. Taking these steps today can help mitigate costly litigation and reinforce a more predictable, employer-favorable approach to resolving employment disputes.

Collin Williams is an attorney, founder, and chairman of New Era ADR, a digital platform revolutionizing alternative dispute resolution. Collin may be reached at collin@neweraadr.com.