California Snapshot: Court sends employees packing . . . to arbitration

Good news for employers.

Can an employer enforce an arbitration agreement between its employees and a joint employer, even if it wasn't a party to the agreement?


Yes it can -- even in California! In Vasquez v. San Miguel Produce, Inc., the California Court of Appeal ruled that a joint employer with a staffing agency could compel employees to arbitrate under an agreement signed by the staffing agency and the employees. This was so even though the employer was not a party to the arbitration agreement. According to the court, the employer could still benefit from the agreement if the claims were “deeply intertwined” with the employment relationship. 

Two employees sued their employer, San Miguel Produce, asserting various wage and hour claims. San Miguel leased the employees through a staffing agency, Employer’s Depot, Inc. EDI had an arbitration agreement with the two employees, but San Miguel did not. When the employees sued, San Miguel brought EDI into the lawsuit by filing a cross-claim for indemnification. Then, both EDI and San Miguel asked the court to require the parties to arbitrate.

The employees raised two clever arguments to avoid arbitration. First, they argued that EDI could not compel arbitration because it was not a named defendant in the case. Second, they argued that San Miguel could not compel arbitration because it was not a party to the arbitration agreement.  

EDI and San Miguel, however, responded that they could compel arbitration because they were joint employers and San Miguel had acted as the agent of EDI. A trial court found in favor of the employees, so EDI and San Miguel appealed.

The California Court of Appeal found in favor of EDI and San Miguel. California courts have long held that "[employees] cannot avoid arbitration by suing non-signatory defendants for claims that are based on the same facts and are inherently inseparable from arbitral claims against signatory defendants." As co-employers, the court said, EDI and San Miguel could jointly enforce the arbitration agreement even though San Miguel did not sign it.

This is because the term “employer” as defined under the applicable wage order “reaches situations in which multiple entities control different aspects of the employment relationship.” In this instance, EDI and San Miguel had “concurrent duties” to pay minimum wages, to keep accurate time records, and to comply with meal and rest period requirements – which formed the basis of the two employees’ claims and were intertwined with the employment relationship.

Although joint employers may bear the heavy burdens of shared liability imposed by California law, they can also jointly benefit from arbitration agreements, even if one of them did not sign the agreement, so long as the claims are intertwined with the joint employment relationship.

California employment laws keep employers up at night, wondering what is coming next. There always seems to be something. From new statutes to new regulations to new court decisions, we will keep you up to date on developments in the areas of wage and hour, discrimination, leaves of absence, retaliation, class actions, PAGA, and arbitration. We’ll also provide you with practical information on how to update your policies and employment practices. Please subscribe to keep current.


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