Franco v. Arakelian Enterprises, Inc.

Filed 2/26/15 (foll. transfer from Supreme Ct.)
CERTIFIED FOR PUBLICATION

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

SECOND APPELLATE DISTRICT

DIVISION ONE

EDIXON FRANCO, B232583

Plaintiff and Respondent, (Los Angeles County
Super. Ct. No. BC369201)
v.

ARAKELIAN ENTERPRISES, INC.,

Defendant and Appellant.

APPEAL from an order of the Superior Court of Los Angeles County, John A.
Kronstadt, Judge. Reversed with directions.
Hill, Farrer & Burrill, Kyle D. Brown, James A. Bowles and E. Sean McLoughlin
for Defendant and Appellant.
Rastegar & Matern, Matthew J. Matern, Farzad Rastegar and Thomas S. Campbell
for Plaintiff and Respondent.
__________________________________________
 Our Supreme Court has transferred this matter to us with directions to vacate our
decision filed November 26, 2012 and to reconsider the cause in light of Iskanian v. CLS
1
Transportation Los Angeles, LLC (2014) 59 Cal.4th 348 (Iskanian).
Following the rule announced in Iskanian, we reverse and remand with directions
the trial court’s order denying the petition of defendant Arakelian Enterprises, Inc.
(Arakelian) to compel arbitration of the plaintiff’s claims for individual and class action
relief, and for representative relief under the Labor Code Private Attorneys General Act of
2
2004 (Lab. Code, §§ 2698-2699.5) (PAGA).
BACKGROUND
This matter comes before us for the third time. The facts are taken from our
opinion and the record in Franco v. Athens Disposal Co., Inc. (2009) 171 Cal.App.4th
1277 (Franco I), and the exhibits filed in connection with the second petition to compel
arbitration following the Franco I decision, with reference to our (now-vacated)
November 26, 2012 opinion in Franco v. Athens Disposal Co., Inc. (2d civ. No. B232583)
(Franco II).
The complaint
On April 9, 2007, plaintiff Edixon Franco filed a lawsuit individually and on behalf
of other similarly situated current and former employees, alleging his status as an
employee of “Athens Disposal Company, Inc., dba Athens Services” (Athens Services).
In the first through fourth and sixth causes of action, Franco brought claims as an
individual and putative class representative, seeking relief against Athens Services based
on his employment as a nonexempt hourly employee, alleging that Athens Services

1
The United States Supreme Court denied certiorari in Iskanian. (CLS Transp.
L.A., LLC v. Iskanian (U.S. Jan. 20, 2015) 2015 U.S. Lexis 735.
2
Statutory references are to the Labor Code unless otherwise specified.

2
 3
engaged in systematic and illegal Labor Code and wage-order violations. In the fifth
cause of action, Franco sued in a representative capacity under the PAGA, seeking civil
penalties for Athens Services’ violations of its Labor Code obligations to Franco and other
current and former employees. (Franco I, supra, 171 Cal.App.4th at p. 1283.) The sixth
cause of action alleged a violation of the California unfair competition law. (Bus. & Prof.
Code, § 17200 et seq.)
First petition to compel arbitration
On June 22, 2007, Athens Services petitioned to compel arbitration and to dismiss
or stay the civil action. The petition stated that Athens Services was in the business of
trash removal, hauling, disposal, and recycling, and that it was engaged in interstate
commerce within the meaning of the Federal Arbitration Act (9 U.S.C. §§ 1-16).
According to Franco, he was employed by Athens Services from May 20, 2005, to
May 12, 2006. (Franco I, supra, 171 Cal.App.4th at p. 1285.) In August 2005, he had
signed an “Employee Agreement to Arbitrate” as a condition of his employment, which
acknowledged his receipt and review of the Athens Services’ Mutual Arbitration Policy
(MAP). The MAP provided (so far as relevant here) that it “will govern all existing or
future disputes between you and the Company that are related in any way to your
employment;” that it “covers all disputes relating to or arising out of an employee’s
employment with the Company or the termination of that employment;” that the mutual
obligation to arbitrate claims “means that both you and the Company are bound to use the

3
Franco alleged that Athens Services engaged in systematic illegal payroll practices
and policies involving all of its hourly employees, in violation of the Labor Code; that it
violated sections 510 and 1194 by failing to pay overtime; that it violated section 226.7
and the applicable Industrial Welfare Commission wage order, No. 9-2001, (Cal. Code
Regs., tit. 8, § 11090), by failing to provide required meal periods and failing to pay
additional compensation for missed meal periods; that (in a separate violation of § 226.7
and the wage order) Athens Services failed to provide rest periods and failed to pay
additional compensation for missed rest periods; and that Athens Services violated
sections 226, 1174, and 1174.5, and the wage order, by failing to provide necessary
payroll information to employees and failing to maintain required employee records.

3
MAP as the only means of resolving any employment-related disputes,” and that “both
you and the Company forego and waive 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 . . . .” But it also provided that “No
remedies that otherwise would be available to you individually or to the Company in a
court of law, however, will be forfeited by virtue of this agreement to use and be bound by
the MAP,” and that the parties retain the right to use small claims court. (Id. at p. 1284.)4
Athens Services’ petition to compel arbitration alleged that arbitration was required
under the MAP agreement. (Franco I, supra, 171 Cal.App.4th at pp. 1283-1284.) Its
petition was supported by declarations, including that of the president of “Athens Disposal
Company, doing business as Athens Services,” alleging Franco’s employment by Athens
Services as a waste truck driver, and his (and all other Athens Services waste hauling
drivers’) exemption from California’s overtime wage laws and regulations. (Id. at p.
1285.)
In opposition to the petition, Franco submitted expert and other declarations to
show that his wage and hour claims can be heard only as a class action, whether in court or
in arbitration, because of the small size of each individual claim and the unavailability of
legal representation for the prosecution of such claims. If arbitration were required, the
experts contended, the result would be an inability to deter Arakelian and other such
employers from continuing their Labor Code violations. (Franco I, supra,
171 Cal.App.4th at pp. 1298-1299.)

4
When Franco was initially hired on May 20, 2005, he was given an Athens
Services Employee Guide, which required arbitration of “[a]ny claim or controversy that
arises out of or relates to the interpretation, application or enforcement of this agreement
or any other matter concerning or relating to the employment relationship between the
Employer and Employee . . . ,” but it did not expressly prohibit an employee from
consolidating claims, pursuing a class action or other representative action, being a class
representative or a member of a class, or acting as a private attorney general. Athens
Services’ initial motion to compel arbitration did not mention the May 2005 arbitration
provision.

4
 The trial court, Elizabeth A. Grimes, Judge, granted the petition to compel
arbitration, reasoning that Franco’s claims for overtime compensation lacked merit, and
that classwide arbitration would not be significantly more effective than individual
arbitrations. The court concluded that the Athens Services arbitration program “would not
disadvantage any employee who pursued claims through individual arbitration.”
5
(Franco I, supra, 171 Cal.App.4th at p. 1287.) Franco appealed.
The Franco I Appeal
This court concluded in Franco I that the MAP’s provisions requiring arbitration
and waiving class actions were unenforceable. (Franco I, supra, 171 Cal.App.4th at pp.
1282, 1303.) Athens Services’ petition for review by the California Supreme Court was
denied (June 17, 2009, S172223); its petition to the United States Supreme Court for writ
of certiorari was denied on January 11, 2010. (Athens Disposal Co., Inc. v. Franco (2010)
558 U.S. 1136 [130 S.Ct. 1050, 175 L.Ed.2d 926].) The case returned to the trial court.
Trial court proceedings following Franco I
At a January 22, 2010 status conference, counsel for Athens Services informed the
court that Franco’s suit had named the wrong defendant: that Athens Disposal Company,
Inc., doing business as Athens Services, was not in fact Franco’s employer; that Franco’s
actual employer was Arakelian, doing business as Athens Services. Subsequent discovery
responses confirmed that Athens Disposal Company, Inc. had never employed Franco (or
apparently anyone else in California) at any relevant time. On March 25, 2010, Franco
amended the complaint to add Arakelian, doing business as Athens Services, as a Doe
defendant.
On May 17, 2010, Arakelian filed a second petition to compel arbitration, again
relying on the August 2005 MAP. The second petition argued that the authorities on
which the Franco I decision had relied in refusing to enforce the MAP had been overruled

5
The order granting arbitration of individual claims and holding that class action
claims had been waived was appealable in Franco I because it was effectively the “death
knell” of the class action litigation. (Franco I, supra, 171 Cal.App.4th at p. 1288.)

5
by the United States Supreme Court in Stolt-Nielsen S.A. v. AnimalFeeds International
Corp. (2010) 559 U.S. 662 [130 S.Ct. 1758, 177 L.Ed.2d 403] (Stolt-Nielsen), rendering
the MAP enforceable. Arakelian argued in the alternative that even if the MAP was not
enforceable (i.e., even if Stolt-Nielsen did not overrule Franco I), the trial court should
compel arbitration based on the pre-MAP arbitration provision in the Athens Services
Employee Guide, which Franco acknowledged receiving when he was hired in May 2005.
Franco opposed the second arbitration petition on the same grounds as the original
petition, arguing that our Franco I decision is decisive under the law of the case doctrine,
even though Arakelian was not then a named defendant, because Arakelian is estopped to
deny it was in privity with the named defendant, and because Stolt-Nielsen did not
constitute a change in the law that would preclude application of the law of the case
doctrine.
On September 13, 2010, the trial court (John Kronstadt, Judge) heard argument and
indicated its denial of the petition for arbitration. On April 11, 2011, the court filed a
comprehensive order denying the petition, identifying two grounds for its ruling: (1) the
law of the case doctrine requires enforcement of the Franco I decision denying arbitration;
and (2) Arakelian waived its right to compel arbitration by failing to identify itself as
Franco’s true employer until after its lawyers had prosecuted the original petition to
compel arbitration and exhausted the appellate process.
The Franco II appeal
Arakelian appealed, this time from the April 11, 2011 order. The central question
in that appeal was whether the decision of the California Supreme Court in Gentry v.
Superior Court (2007) 42 Cal.4th 443 (Gentry), on which our decision in Franco I had
relied, was abrogated by the decisions of the United States Supreme Court in Stolt-Nielsen,
supra, and AT&T Mobility v. Concepcion (2011) 563 U.S. ___ [131 S.Ct. 1740, 179
L.Ed.2d 742] (Concepcion). This court’s decision in Franco II affirmed the trial court’s
denial of the defendant’s second petition to compel arbitration, holding that the Stolt-
Nielsen and Concepcion decisions did not overrule the Gentry decision, and that the
MAP’s agreement to forego class actions and private attorney general actions is

6
unenforceable. (Franco II, supra.) (The Franco II decision did not address the effect, if
any, of Arakelian’s delay in identifying itself as Franco’s true employer.)
However, our Supreme Court granted review of the Franco II decision, deferring
action until disposition of a related issue in Iskanian, supra, 59 Cal.4th 348. After
deciding Iskanian, it transferred the cause back to this court with directions to vacate and
reconsider our Franco II decision in light of Iskanian.
DISCUSSION
The central issue in this appeal concerns the impact of the Iskanian decision on the
trial court’s determination that the MAP’s agreement to forego representative and class
actions is unenforceable: whether the trial court erred in refusing to compel arbitration of
Franco’s claims against Arakelian for individual and class action relief, and his claim for
relief under the PAGA. Because the material facts are not in dispute and the appeal
presents an issue of law, our standard of review is de novo. (W.M. Barr & Co., Inc. v.
South Coast Air Quality Management Dist. (2012) 207 Cal.App.4th 406, 423; Nickell v.
Matlock (2012) 206 Cal.App.4th 934, 940.)
The arbitration provision in this case—the MAP—was imposed on Franco and
other employee-members of his putative class as a condition of their employment, and
provided that “both the Company and [Franco] agree to forego any right . . . to bring
6
claims on a representative or class basis. . . .” In Gentry, our Supreme Court had held that
arbitration agreements obtained as a condition of employment, containing class action
waivers that limit employees’ ability to vindicate statutory protections, are unenforceable
as a matter of public policy. Our decision in Franco I rested in part on that rule, holding
that because employer-imposed agreements are ineffective to waive Labor Code employee
protections, the MAP agreement to arbitrate any such employment disputes is
unenforceable. (Franco I, supra, 171 Cal.App.4th at pp. 1290-1294.) In Franco II, we

6
The MAP defines “the Company” as “Athens Services . . . or its parent,
subsidiary, sister or affiliated companies or entities, and each of its and/or their . . .
agents . . . .”

7
held that the rule of Gentry on which our Franco I decision had relied remained good law,
and was not overruled by subsequent decisions of the United States Supreme Court,
including the decision in Concepcion.
But in Iskanian, our Supreme Court held that its Gentry decision has been
abrogated by the United States Supreme Court’s decision in Concepcion, which holds that
the Federal Arbitration Act, title 9 United States Code section 1 et seq. (FAA) preempts
state-law statutory protections such as those shielded from class action waivers under the
Gentry decision. (Iskanian, supra, 59 Cal.4th at pp. 364-365.) Under Concepcion and
Iskanian, the public policy behind the vindication of employees’ statutory protections must
yield to the policy protecting agreements to arbitrate disputes involving interstate
commerce. Class action waivers—even waivers that are obtained as a condition of
employment and that limit employees’ ability to vindicate statutory employee
protections—are not categorically invalid or unenforceable.
We are bound by the ruling of our Supreme Court in Iskanian. “Courts exercising
inferior jurisdiction must accept the law declared by courts of superior jurisdiction. It is
not their function to attempt to overrule decisions of a higher court.” (Auto Equity Sales,
Inc. v. Superior Court of Santa Clara County (1962) 57 Cal.2d 450, 455.)
Under the FAA, the agreement by Franco and his employer to submit their
employment disputes to arbitration, and to forego the right to pursue claims on behalf of a
class of similarly situated employees, therefore is not rendered unenforceable on the
grounds we relied upon in Franco I and reaffirmed in Franco II. The parties’ MAP
agreement to arbitrate their employment disputes is enforceable unless it is found to be
unconscionable on grounds that exists “for the revocation of any contract,” within the
meaning of the FAA’s savings clause. (9 U.S.C. § 2; Concepcion, supra, 131 S.Ct. at p.
1747; Iskanian, supra, 59 Cal.4th at pp. 364, 371.)7 Under this law, as enunciated in

7
The FAA’s “savings clause,” italicized below, provides that “A written provision
in any . . . contract evidencing a transaction involving commerce to settle by arbitration a

8
Iskanian and discussed below, the MAP’s waivers of Franco’s right to pursue non-PAGA
claims as a class representative are enforceable, precluding the prosecution of those claims
in any forum; however Franco’s purported waiver of his right to prosecute the statutory
claims afforded by the PAGA is unenforceable, and his PAGA claims are not subject to
arbitration.
I. The Order Denying Arbitration Of Franco’s Claims Must Be Reversed.
A. The Doctrine Of Law Of The Case Does Not Require Adherence To The
Franco I Decision.
The Franco I decision held that the MAP’s provisions for arbitration and waiving
class actions rendered the agreement unenforceable. The doctrine of law of the case gives
finality to appellate decisions, precluding courts from revisiting issues that has been
determined in earlier appellate proceedings between the same parties. (Morohoshi v.
Pacific Home (2004) 34 Cal.4th 482, 491.) “‘“Where a decision upon appeal has been
rendered by a District Court of Appeal and the case is returned upon a reversal, and a
second appeal comes to this court directly or intermediately, for reasons of policy and
convenience, this court generally will not inquire into the merits of said first decision, but
will regard it as the law of the case.”’” (Clemente v. State of California (1985) 40 Cal.3d
202, 211-212.)
The law of the case doctrine cannot be applied in this case to preclude
redetermination of the question whether the MAP’s waivers are unenforceable, however.
That is because the doctrine is not applied where it would lead to unjust results—notably
in this case, where there has been an intervening change in the law on which the earlier
decision is based. (Davies v. Krasna (1975) 14 Cal.3d 502, 507; Anton v. San Antonio
Community Hospital (1982) 132 Cal.App.3d 638, 647.)

controversy thereafter arising . . . shall be valid, irrevocable, and enforceable, save upon
such grounds as exist at law or in equity for the revocation of any contract.” (9 U.S.C. §
2, italics added.)

9
 Here, the law concerning the enforceability of the parties’ arbitration agreement and
class action waivers has changed significantly since the Franco I decision. The Iskanian
decision has held that the decision in Concepcion precludes an order denying arbitration
on the grounds on which we relied in Franco I. The law of the case doctrine therefore
cannot be applied to avoid redetermination of the questions in that case—whether the
MAP’s arbitration agreement and class action waivers are unenforceable.
B. Arakelian’s Delay In Identifying Itself As Franco’s Employer Did Not
Waive Its Right To Compel Arbitration.
On April 11, 2011, the court denied Arakelian’s petition for arbitration of Franco’s
class action and representative action claims, basing its ruling in part on Arakelian’s long
delay in identifying itself as Franco’s true employer, until after its attorneys had
prosecuted the original petition to compel arbitration and exhausted the appellate process.
We conclude that the grounds stated by the trial court do not alone justify a determination
that Arakelian waived its right to enforce the parties’ MAP agreement.
So far as is apparent from the record before us, the trial court’s concern was based
on Arakelian’s delay until January 2010, to disclose that Franco was not employed by the
named defendant—“Athens Disposal Company, Inc., dba Athens Services, a California
corporation”—but by Arakelian, “doing business as Athens Services.” Both entities were
8
represented by the same lawyers. Thus, the entire time the lawyers were representing

8
Franco pointed out that in May 2005, about two years before he filed this case, the
Hill firm had appeared on behalf of “Arakelian Enterprises, Inc., dba Athens Services” in a
different employment case (Flores v. Arakelian Enterprises, Inc. (Super. Ct. L.A. County,
2005, No. BC333940)) (Flores). In Flores, the lawyers had presented the declaration of
the president of “Arakelian Enterprises, Inc. d/b/a Athens Services”; but in this case the
declaration of the president of “Athens Disposal Company, Inc., dba Athens Services, a
California corporation” represented that Franco had been the company’s employee, that it
had complied with the Labor Code and wage orders relating to its employees (thereby
representing that Athens Disposal Company, Inc. did have employees, including Franco).
Judgment was entered in the Flores case on July 22, 2010, confirming the arbitration
award in Arakelian’s favor.

10
“Athens Disposal Company, Inc., dba Athens Services” in this case, the firm knew that the
company doing business as Athens Services was Arakelian, not Athens Disposal
Company, Inc. Yet it did not disclose that Arakelian was Franco’s employer until after
Athens Services had represented otherwise in discovery, and had exhausted all its
appellate proceedings unsuccessfully seeking to compel arbitration.
Trial courts unquestionably have authority to impose appropriate sanctions or other
remedial measures upon determination that the litigation conduct of a party or its attorneys
falls short of that required by the law and applicable rules of ethics. (Code Civ. Proc., §§
128.5, 1211, 1212; see Bauguess v. Paine (1978) 22 Cal.3d 626, 637.) But the rules for
determining whether a party’s conduct constitutes a waiver of its right to enforce an
agreement to arbitrate disputes are not the same as those governing the court’s right to
remedy and punish contempts. Any doubts about whether a party’s conduct has waived its
right to compel arbitration must be resolved in favor of arbitration. (St. Agnes Medical
Center v. PacifiCare of California (2003) 31 Cal.4th 1187, 1195; Christensen v. Dewor
Developments (1983) 33 Cal.3d 778, 782.) Although the determination of waiver
ordinarily is a question of fact that is binding on the appellate court if it is supported by
sufficient evidence, the issue is one of law requiring de novo determination when the facts
are undisputed and only one inference may reasonably be drawn. (St. Agnes Medical
Center v. PacifiCare of California, supra, 31 Cal.4th at p. 1196.)
Past cases have found a waiver of the right to compel arbitration in situations
ranging from those in which after a dispute has arisen the party seeking arbitration has
taken steps that are inconsistent with an intention to invoke arbitration, has unreasonably
delayed undertaking the arbitration procedure, or has acted in bad faith or willful
misconduct with respect to its arbitration rights—for example, by misleading and
prejudicing the party opposing arbitration. (St. Agnes Medical Center v. PacifiCare of
California, supra, 31 Cal.4th at pp. 1196, 1203; Sobremonte v. Superior Court (1998) 61
Cal.App.4th 980, 992.) Prejudice typically is found only where conduct of the petitioning
party has substantially impaired the other party’s ability to obtain the benefits and
efficiencies of arbitration, for example, when the party has unreasonably delayed seeking

11
arbitration (e.g., Sobremonte v. Superior Court, supra, 61 Cal.App.4th at pp. 995-996);
where the party has exploited trial court discovery procedures that would be unavailable to
it in arbitration (e.g., Berman v. Health Net (2000) 80 Cal.App.4th 1359, 1366); or where
delay by the petitioning party has resulted in lost evidence (e.g., Christensen v. Dewor
Developments, supra, 33 Cal.3d at pp. 783-784 [waiver found where party filed suit
without arbitration demand and pursued litigation for admitted purpose of obtaining
verified pleadings that would reveal opposing party’s litigation theories]).
In the absence of evidence that would further explicate the impact and prejudice (if
any) resulting from inaccurate or misleading representations concerning Franco’s
employment, and Arakelian’s failure to earlier identify itself as Franco’s employer, the
record presently discloses no conduct that could justify the trial court in determining that
Arakelian has waived its arbitration rights under the MAP provision. The record shows no
evidence of trial court discovery or motion procedures that exceed or are inconsistent with
those to which the parties would be entitled in arbitration, or that resulted in prejudice to
either party. If Arakelian’s belated identification as the true defendant prejudiced Franco’s
ability to obtain the legitimate benefits of arbitration, that showing has yet to be made.
The finding that Arakelian has waived its right to compel arbitration under the MAP
procedures is not supported by the record in this appeal.
C. The Agreement For Arbitration Of Franco’s Class Action Claims Does Not
Render The Agreement Categorically Unenforceable.
Section 2 of the FAA—the act’s “primary substantive provision” (Concepcion,
supra, 131 S.Ct. at p. 1745)—states that “‘[a] written provision in any . . . contract
evidencing a transaction involving commerce to settle by arbitration a controversy
thereafter arising out of such contract or transaction . . . shall be valid, irrevocable, and
enforceable, save upon such grounds as exist at law or in equity for the revocation of any
contract.’ 9 U.S.C. § 2.” (Concepcion, supra, 131 S.Ct. at p. 1745.) That provision is a
“congressional declaration of a liberal federal policy favoring arbitration agreements,
notwithstanding any state substantive or procedural policies.” Its effect “is to create a
body of federal substantive law of arbitrability, applicable to any arbitration agreement

12
within the coverage of the Act.” (Moses H. Cone Hospital v. Mercury Constr. Corp.
(1983) 460 U.S. 1, 24 [103 S.Ct. 927, 74 L.Ed.2d 765].) The savings clause, the provision
that an arbitration agreement may be found unenforceable “upon such grounds as exist at
law or in equity for the revocation of any contract,” refers to contract defenses such as
fraud, duress, or unconscionability. (Concepcion, supra, 131 S.Ct. at p. 1746.)
In Gentry, supra, the California Supreme Court held that a waiver of the right to
prosecute class actions (whether in court or in arbitration) is invalid and unenforceable
under California law, if it is determined that an individual action would not approximate
the benefits afforded by a class proceeding. But in Concepcion, the United States
Supreme Court held otherwise with respect to agreements for the arbitration of
employment disputes. It held that class proceedings interfere with fundamental beneficial
attributes of arbitration, and therefore are inconsistent with the FAA. They are preempted
by the FAA, at least in the absence of an agreement to the contrary. (Concepcion, supra,
131 S.Ct. at p. 1746; Iskanian, supra, 59 Cal.4th at pp. 363-365 [FAA preempts state law
protections such as those shielded from class action waivers by the Gentry decision].)
When the parties have validly elected to resolve employment disputes in arbitration,
the ineffectiveness of an individual proceeding for the resolution of their disputes does not
render a class action waiver invalid or unenforceable, nor does it render the arbitration
agreement itself invalid or unenforceable. The FAA precludes any order requiring class
action arbitration of wage and hour claims unless the parties have affirmatively agreed to
it. (Stolt-Nielsen, supra, 559 U.S. 662 [130 S.Ct. 1758, 177 L.Ed.2d 403]; Iskanian,
supra, 206 Cal.App.4th at pp. 959-961.) “[A] party may not be compelled under the FAA
to submit to class arbitration unless there is a contractual basis for concluding that the
party agreed to do so.” (Stolt-Nielsen, supra, 130 S.Ct. at p. 1775, original italics.) Here,
far from affirmatively agreeing to submit disputes concerning employment wage and hour
claims to class action arbitration, the parties have agreed to forego class action treatment
of any such claims.

13
 We are compelled by these rulings to reverse the trial court’s order denying the
petition for arbitration on the ground that employer-imposed class action waivers are
unenforceable because they limit employees’ ability to vindicate statutory employee
protections—the grounds set forth in Franco I and Franco II. (Iskanian, supra, 59 Cal.4th
at pp. 364-365.) If the MAP arbitration provisions are otherwise enforceable, Franco’s
claims against Arakelian can be prosecuted only in arbitration proceedings of his
individual claims, and the agreement’s class action waiver provisions preclude
enforcement of his class action claims in any forum.
II. The MAP’s Waiver Of Franco’s Right To Prosecute Representative Claims
Under The PAGA Is Unenforceable.
The PAGA authorizes an employee to bring an action against his or her employer
for Labor Code violations committed against the employee and fellow employees, to
recover civil penalties provided by the PAGA statute. The action is brought on behalf of
the state, which receives most of the resulting penalty proceeds. (§ 2698 et seq.; Iskanian,
supra, 59 Cal.4th at p. 360.) The MAP agreement in this case, like the arbitration
agreement in Iskanian, precludes an employee’s assertion of representative actions, which
the parties apparently understood to encompass actions brought under the PAGA. (See
Iskanian, supra, 59 Cal.4th at pp. 361, 378.)
As we have concluded in the preceding section, the parties’ MAP agreement is not
categorically unenforceable, either by virtue of its waiver of class actions or for the
reasons relied upon by the trial court in denying the second petition to compel arbitration.
Franco’s claims for individual relief are subject to arbitration. However, as we explain
below, his representative claims under the PAGA are not.
A. Franco’s Right To Bring A Representative Action Under The PAGA Is
Unwaivable Under California Law.
After determining that class-action waivers are enforceable, the court in Iskanian
turned to the question whether the MAP agreement’s waiver of representative actions
precludes the employee from prosecuting a PAGA claim—i.e., whether waivers of the
right to prosecute PAGA claims are enforceable under state law, and if they are not,

14
whether the FAA preempts that state-law prohibition of enforcement of such waivers.
(Iskanian, supra, 59 Cal.4th at p. 378.)
Iskanian answered the first of these questions by holding that as a matter of state
law, an employment agreement that compels a waiver of the employee’s statutory right to
bring representative claims under the PAGA is contrary to public policy and
unenforceable. (Iskanian, supra, 59 Cal.4th at pp. 382-384.) A representative action
under the PAGA is not a class action, but rather is a type of qui tam action, in which the
employee-plaintiff acts as private attorney general—an agent of the state—while the
governmental entity on whose behalf he or she sues is the real party in interest. (Id. at p.
382.) In enacting the PAGA, the Legislature declared that it is necessary, and in the public
interest, to allow aggrieved employees to act as private attorneys general for the purpose
of seeking and recovering civil penalties for Labor Code violations, while labor law
enforcement agencies retain the right to control the enforcement efforts and would receive
the bulk of any recoveries. (Arias v. Superior Court (2009) 46 Cal.4th 969, 980-981
(Arias); Iskanian, supra, 59 Cal.4th at p. 379.) Under the PAGA, an employee is entitled
to bring an action “personally and on behalf of other current or former employees to
recover civil penalties for Labor Code violations”—but only if the responsible state
agency has declined the opportunity to do so. (§§ 2699, subd. (a), 2699.3, subd. (a); Arias,
supra, 46 Cal.4th at p. 980.) Any penalties recovered are divided, 75 percent going to the
state agency and 25 percent to aggrieved employees. (Arias, supra, 46 Cal.4th at p. 980;
Iskanian, supra, 59 Cal.4th at p. 380.) An action under the PAGA “‘is fundamentally a
law enforcement action designed to protect the public and not to benefit private parties.’”
(Iskanian, supra, 59 Cal.4th at p. 381; Arias, supra, 46 Cal.4th at p. 986.) The aggrieved
employee sues under the PAGA “as the proxy or agent of the state’s labor law
enforcement agencies.” (Arias, supra, at p. 986; Iskanian, supra, at p. 380.)
Because the rights asserted in an action under the PAGA are those of the state
rather than of the plaintiff-employee, the right to prosecute such an action cannot be
waived by private agreement. Such an agreement would violate two important provisions
of law, which are themselves derived from public policy. Civil Code section 1668 forbids

15
enforcement of any contract that has as its direct or indirect object the exemption of parties
from their violations of law. (Iskanian, supra, 59 Cal.4th at p. 382; In re Marriage of Fell
(1997) 55 Cal.App.4th 1058, 1065.) And Civil Code section 3513 provides that one may
waive the advantages of a law that is intended to benefit just him or her, but “a law
established for a public reason cannot be contravened by a private agreement.” (Iskanian,
supra, 59 Cal.4th at p. 383; Armendariz v. Foundation Health Psychcare Servs., Inc.
(2000) 24 Cal.4th 83, 100.) A private employer-employee agreement that precludes the
state’s agents—aggrieved employees acting as private attorneys general—from enforcing
the employer’s Labor Code obligations and recovering civil penalties on behalf of the state
constitutes exactly what Civil Code section 1668 prohibits: a contract that has as its object
the exemption of the employer from its violations of the law. And the parties cannot by
private agreement waive the benefits of the PAGA, because its primary benefits are public,
not private. It is “a law established for a public reason”—the state’s interests in enabling
enforcement of its labor law standards and in receiving the proceeds of the civil penalties
that are imposed in order to deter employer violations. (Civ. Code, § 3513; Iskanian,
supra, at p. 383.) For these reasons it is contrary to policy and the law of this state for an
employment agreement to eliminate the ability of aggrieved employees to act on the
state’s behalf in enforcing its labor laws, as provided by the PAGA. Under the law of this
state, an employee’s pre-dispute waiver of the right to bring a PAGA action is
unenforceable. (Iskanian, supra, 59 Cal.4th at p. 383.)
The rights afforded Franco by the PAGA are intended primarily to advance the
public’s interest in deterring employers from violating labor laws established for public
benefit. As such, public policy and the laws of this state preclude enforcement of the
private agreement purporting to prevent Franco from enforcing the state’s interests under
9
the PAGA.

9
Because our decision on this issue rests on the grounds decided in Iskanian, we
have no occasion to review whether Franco’s right to prosecute representative PAGA

16
 B. The State-Law Rule Against Employee Waivers Of PAGA Rights Does Not
Frustrate The FAA’s Objectives And Is Not Preempted By The FAA.
The state-law rule against pre-dispute employee waivers of the right to prosecute
claims under the PAGA cannot be enforced if the rule “stand[s] as an obstacle to the
accomplishment of the FAA’s objectives.” (Iskanian, supra, 59 Cal.4th at p. 384.)
Recognizing that immutable principle of federal law, as clarified and restated by the
Concepcion case, our Supreme Court examined in Iskanian whether the FAA’s objectives
of ensuring parties’ ability to provide for an efficient forum for the economical and speedy
resolution of their private disputes is frustrated by the state’s policy against enforcement of
pre-dispute employee waivers of the rights afforded by the PAGA. (Id. at pp. 384-385.)
On that question—whether the law of this state is preempted by the FAA—the
court held in Iskanian that the state-law rule prohibiting enforcement of agreements
waiving the right to bring representative claims under the PAGA does not frustrate the
FAA’s objective of ensuring an efficient forum for the resolution of private employer-
employee disputes, and therefore is not preempted by the FAA. That is because a PAGA
action involves a dispute between the employer and the state agency on whose behalf the
representative plaintiff acts, rather than a private employer-employee dispute. (Iskanian,
supra, 59 Cal.4th at p. 384.) Based on its in-depth examination of the FAA’s objectives as
revealed by the statute’s legislative history, the court concluded that in an action for civil
penalties under the PAGA, “‘the employee plaintiff represents the same legal right and
interest as state labor law enforcement agencies,’” and “‘an aggrieved employee’s action
under the [PAGA] functions as a substitute for an action brought by the government
itself.’” (Id. at p. 387, quoting Arias, supra, 46 Cal.4th at p. 986.) The bulk of any
recovery under the PAGA goes to the state, not to the plaintiff-employee; and the
judgment in a PAGA action binds the state just as it binds the employer and the plaintiff-

claims in arbitration would be affected by the MAP’s express provision that “No remedies
that otherwise would be available to you individually or to the Company in a court of law,
however, will be forfeited by virtue of this agreement to use and be bound by the MAP.”

17
employee. (Arias, supra, 46 Cal.4th at p. 986; Iskanian, supra, 59 Cal.4th at p. 387.)
“‘[E]very PAGA action, whether seeking penalties for Labor Code violations as to only
one aggrieved employee—the plaintiff bringing the action—or as to other employees as
well, is a representative action on behalf of the state.’” (Iskanian, supra, 59 Cal.4th at pp.
387, 394.) “Simply put, a PAGA claim lies outside the FAA’s coverage because it is not a
dispute between an employer and an employee arising out of their contractual relationship.
It is a dispute between an employer and the state, which alleges directly or through its
agents—either the [state Labor Workforce Development] Agency or aggrieved
employees—that the employer has violated the Labor Code.” (Id. at pp. 386-387.)10
Based on this analysis, the court in Iskanian concluded that California’s public
policy prohibiting waiver of PAGA claims does not interfere with the FAA’s goal of
promoting arbitration as a forum for private dispute resolution. “[T]he FAA aims to
promote arbitration of claims belonging to the private parties to an arbitration agreement.
It does not aim to promote arbitration of claims belonging to a governmental agency, and
that is no less true when such a claim is brought by a statutorily designated proxy for the
agency as when the claim is brought by the agency itself.” (Iskanian, supra, 59 Cal.4th at
p. 388.) We therefore hold, as the Iskanian decision requires, that the FAA does not
preempt California’s state-law rule precluding pre-dispute waivers of enforcement rights
11
under the PAGA.

10
In a separate concurring opinion in Iskanian, Justices Werdegar and Chin joined
the majority decision that the PAGA waiver in Iskanian is unenforceable, but based their
conclusion on grounds different from those of the other three majority-opinion justices.
Their concurring opinion relies on the United States Supreme Court’s recognition in
American Express Co. v. Italian Colors Restaurant (2013) 570 U.S. ___ [133 S.Ct. 2304,
186 L.Ed.2d 417], of exceptions to the requirement that the FAA preempts the assertion of
certain statutory rights, which exceptions are broad enough to encompass the
representative-action waiver in Iskanian. (Iskanian, supra, 59 Cal.4th at pp. 392-394.)
11
Because “every PAGA action,” whether seeking penalties as to only one
aggrieved employee or as to other employees as well, “is a representative action on behalf

18
 C. The Unenforceable Agreement Barring Franco’s PAGA Claims Does Not
Render The MAP Agreement Categorically Unenforceable.
Franco asks that we find the MAP agreement to be unconscionable, and therefore
unenforceable, based on the intent it attributes to Arakelian to preclude its employees from
obtaining the benefits of the protections and remedies provided by California’s PAGA
law, in violation of public policy. As discussed above, the court held in Iskanian that “it is
against public policy for an employment agreement to deprive employees of [the option to
enforce the PAGA] altogether, before any dispute arises.” (Iskanian, supra, 59 Cal.4th at
p. 387.) We decline to accede to this request.
We need not contemplate whether such a ruling might or might not be appropriate
when a party seeking to enforce a pre-dispute arbitration agreement is found to have
drafted and obtained the agreement with an intention to thwart public policy. But such a
remedy is not appropriate here. Arakelian drafted and obtained the MAP agreement’s
representative-action waiver in 2005. That was almost a decade before the Iskanian
decision held that enforcement of such waivers with respect to actions under the PAGA
would violate public policy, while their enforcement with respect to class actions would
not. From this we are unable to find that the central purpose of the MAP agreement is
tainted with illegality, we are unable to conclude that Arakelian predicted the final
outcome of the yet-to-be decided Iskanian decision, and we are unable to infer from these
circumstances an intention on Arakelian’s part to thereby thwart public policy. By
rendering unenforceable the MAP agreement’s bar to Franco’s enforcement of the
protections afforded by the PAGA, Franco is prevented from gaining undeserved relief
from his agreement to arbitrate his individual claims, while Arakelian is prevented from

of the state” (Iskanian, supra, 59 Cal.4th at pp. 387, 394), Franco’s individual PAGA
claims are no more subject to his MAP agreement than are his representative claims. For
that reason we need not consider Arakelian’s concession at oral argument that all the
individual and representative PAGA claims would best be adjudicated in the same forum.

19
the undeserved detriment of having its entire agreement voided due to its inclusion of a
provision respecting only certain claims; the parties’ contractual relationship is preserved,
without condoning or accepting an illegal scheme. (See Little v. Auto Stiegler, Inc. (2003)
29 Cal.4th 1064, 1074-1075; Armendariz v. Foundation Health Psychcare Servs., Inc.
(2000) 24 Cal.4th 83, 124.)
CONCLUSION
The rulings in Concepcion and Iskanian require that we reverse and remand to the
trial court the orders denying Arakelian’s petition for arbitration of Franco’s claims, with
directions to grant the petition for arbitration of Franco’s individual claims against
Arakelian, while enforcing the parties’ contractual agreement to forego any right “to make
claims in arbitration as a representative or as a member of a class or in a private attorney
general capacity,” except that the MAP cannot be enforced to preclude Franco from
prosecuting claims against Arakelian under the PAGA in a non-arbitration forum.
Because the issues subject to litigation under the PAGA might overlap those that are
subject to arbitration of Franco’s individual claims, the trial court must order an
appropriate stay of trial court proceedings. (Code Civ. Proc., § 1281.4.)12 The stay’s
purpose is to preserve the status quo until the arbitration is resolved, preventing any
continuing trial court proceedings from disrupting and rendering ineffective the
arbitrator’s jurisdiction to decide the issues that are subject to arbitration. (Federal Ins.
Co. v. Superior Court (1998) 60 Cal.App.4th 1370, 1374.)

12
Code of Civil Procedure section 1281.4 provides, as pertinent here, that if
arbitration “of a controversy which is an issue involved in an action or proceeding pending
before a court of this State” is ordered, the court in which the action or proceeding is
pending “shall, upon motion of a party to such action or proceeding, stay the action or
proceeding until an arbitration is had in accordance with the order to arbitrate or until such
earlier time as the court specifies.”

20
 DISPOSITION
The order denying Arakelian’s petition to compel arbitration is reversed. The
matter is remanded for further proceedings consistent with this opinion. The parties are to
bear their own costs on appeal.
CERTIFIED FOR PUBLICATION.

CHANEY, J.

We concur:

ROTHSCHILD, P. J.

JOHNSON, J.

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