April 24, 2026|Franchise Frontlines
April 24, 2026 | California Court of Appeal, First District, Division Five | Unpublished Opinion
Executive Summary
In an unpublished decision, the California Court of Appeal affirmed the denial of a motion to compel arbitration in a Private Attorneys General Act (“PAGA”) action against Capstone Logistics, LLC and Home Depot U.S.A., Inc. The plaintiff, a warehouse worker, brought representative wage-and-hour claims alleging the defendants operated as joint employers. Defendants argued that the arbitration agreement required arbitration of at least the plaintiff’s individual PAGA claims under current law. The plaintiff countered that the agreement expressly excluded claims “not subject to arbitration under current law,” which, at the time of contracting, included PAGA claims. The court agreed with the plaintiff, holding that the parties’ use of “current law” referred to the law in effect at the time the agreement was formed, not subsequent developments such as Viking River Cruises, Inc. v. Moriana. As a result, the agreement excluded PAGA claims from arbitration, and the motion to compel was properly denied.
Relevant Background
The plaintiff entered into an arbitration agreement with Capstone in 2019 in connection with his employment as a warehouse worker. The agreement broadly required arbitration of “Covered Claims,” including statutory wage-and-hour disputes and claims related to employment or services performed for business partners or customers. It also included a waiver of class and collective actions.
Critically, the agreement carved out “Excluded Claims,” defined to include “claims that are not subject to arbitration under current law.” At the time the agreement was executed, California law—under Iskanian v. CLS Transportation Los Angeles, LLC—precluded the arbitration of PAGA claims in any forum.
In 2021, the plaintiff filed a PAGA action alleging wage-and-hour violations against Capstone and Home Depot, asserting that the entities functioned as joint employers. Defendants moved to compel arbitration of the plaintiff’s individual PAGA claims and to stay the representative claims. The trial court denied the motion, finding the agreement unconscionable. On appeal, the Court of Appeal affirmed, but on different grounds, concluding that the claims were contractually excluded from arbitration.
Decision
The court began by emphasizing that arbitration remains a matter of contract, and the dispositive issue was the parties’ intent at the time the agreement was formed. Applying California contract principles, the court focused on the phrase “claims that are not subject to arbitration under current law.”
At the time of contracting in 2019, California law treated PAGA claims as categorically non-arbitrable. The court therefore concluded that the parties, by referencing “current law,” intended to exclude PAGA claims from arbitration.
The defendants argued that subsequent legal developments—most notably the United States Supreme Court’s decision in Viking River Cruises, Inc. v. Moriana, which permits arbitration of individual PAGA claims—should control. The court rejected that argument, explaining that later changes in the law do not alter the parties’ original contractual intent. The relevant inquiry was not what the law permits today, but what the parties agreed to at the time of contracting.
The court reinforced this conclusion by analyzing the agreement’s broader language. It noted that the parties used different formulations throughout the contract, including references to “applicable law” and “controlling law,” but chose the more limited phrase “current law” in the exclusion provision. That distinction demonstrated an intentional temporal limitation. Had the parties intended to incorporate future legal developments, they could have used broader language, but they did not.
The court also rejected the argument that “current law” should be interpreted to mean the law at the time of enforcement. It reasoned that contract interpretation principles require courts to assess intent at formation, and incorporating future legal changes would effectively modify the agreement without mutual consent.
Because the agreement excluded claims not subject to arbitration under the law in effect at the time of contracting, and PAGA claims fell within that category, the court held that the plaintiff’s claims were not subject to arbitration. Having resolved the issue on this contractual basis, the court declined to address the trial court’s unconscionability analysis.
Looking Forward
This decision illustrates how pre-Viking River arbitration agreements may produce unexpected outcomes when applied in today’s legal environment. For franchisors and other multi-unit operators, the case underscores that arbitration strategy is only as effective as the underlying contract language.
The court’s reasoning confirms that courts will focus on the parties’ intent at the time of drafting, not on subsequent legal developments that might otherwise favor arbitration. Agreements that incorporate temporally limited language—such as references to “current law”—may unintentionally lock in outdated legal frameworks and foreclose arbitration even where later authority would permit it.
The decision also highlights the importance of consistency in drafting. Where agreements use different terms such as “current law,” “applicable law,” and “controlling law,” courts may assign distinct meanings to each, with significant consequences. Careful alignment of terminology across provisions can help avoid unintended exclusions.
For franchisors, the implications extend beyond employment agreements. Many systems rely on standardized agreements implemented across locations and over time. Legacy provisions—particularly those drafted before major legal shifts—should be reviewed to ensure they align with current enforcement objectives. Without that review, systemwide agreements may inadvertently limit the ability to compel arbitration in high-exposure claims, including representative actions.
More broadly, this case demonstrates that arbitration provisions must be revisited as legal doctrines evolve. While Viking River created new opportunities to compel arbitration of certain claims, those opportunities depend on contract language that supports enforcement. Agreements that fail to anticipate or accommodate legal change may undermine those benefits.
This article is based solely on the opinion of the Court in this matter. The author has not conducted any independent investigation into the facts. For the avoidance of doubt, each statement related to the law and facts in this article is drawn from the Court’s opinion in this case.
Thomas O’Connell is a Partner at Buchalter LLP and Chair of the firm’s Franchise Practice Group. For questions about this article or media inquiries, you can contact Tom at toconnell@buchalter.com.
This communication is not intended to create, and does not create, an attorney-client relationship or any other legal relationship. No statement herein constitutes legal advice, nor should it be relied upon or interpreted as such. This communication is for general informational purposes only and is not a substitute for legal counsel. Readers should not act or refrain from acting based on any information provided without seeking appropriate legal advice specific to their situation. For more information, visit www.buchalter.com.
