On February 26, 2015, in Franco v. Arakelian Enterprises, Inc., Case No. B232583, the California Court of Appeal, Second Appellate District held that trial court proceedings on claims pursuant to the California Private Attorney General Act (“PAGA”) (Labor Code § 2698 et seq.) must be stayed pending individual arbitration of the underlying individual wage and hour claims (originally pled as classwide claims) pursuant to an arbitration agreement containing a classwide arbitration waiver.

In Franco, the plaintiff signed an “Employee Agreement to Arbitrate” that governed “all existing or future disputes” between the plaintiff and the company that “are related in any way” to the plaintiff’s employment. The Arbitration Agreement further provided that the plaintiff and the company had “forego[ne] and waive[d] any right to join or consolidate claims in arbitration with others or to make claims in arbitration as a representative or as a member of a class or in a private attorney general capacity.”

The plaintiff filed suit alleging various classwide wage and hour claims, as well as a derivative representative action pursuant to PAGA. The defendant sought to compel arbitration.

Following the decision in Iskanian v. CLS Transportation Los Angeles, LLC (2014) 59 Cal.4th 348, the Court of Appeal ordered the plaintiff’s wage and hour claims to arbitration on an individual basis, and held that the PAGA representative action must be stayed in Superior Court pending the outcome of the individual arbitration.

Pursuant to Iskanian, the Court upheld the company’s classwide arbitration waiver and compelled the wage and hour claims to proceed to arbitration on an individual basis; however, the Court also held that, followingIskanian, pre-dispute waivers of qui tam representative actions on behalf of the state, such as PAGA actions, are unenforceable in that they are contrary to the public policy of the state. For more information on the Iskanian decision click here.

Most importantly, the Court provided the first appellate court guidance on how the Superior Court should handle the PAGA claims pending the individual arbitration, a question that has gone unanswered since theIskanian decision. Citing Code of Civil Procedure section 1281.4, which states that the Superior Court “shall…stay the action…until an arbitration is had in accordance with the order to arbitrate,” the Court found that the derivative PAGA claims must be stayed in the Superior Court pending the outcome of the individual arbitration.