This happens frequently. Unless the defendant want to waive arbitration, which it can, it must file a motion to stay the proceeding and motion to compel arbitration.
The above is general legal and business analysis. It is not "legal advice" but analysis, and different lawyers may analyse this matter differently, especially if there are additional facts not reflected in the question. I am not your attorney until retained by a written retainer agreement signed by both of us. I am only licensed in California. See also avvo.com terms and conditions item 9, incorporated as if it was reprinted here.
If you wish to force the plaintiff to honor the arbitration provision, you must file a petition to compel arbitration.
Many courts hear these petitions on their law and motion calendars, and the rules when a complaint has already been filed, with the timing requirements for papers following the general rules for motions. You should check your court's local rules, however, to see if there are special procedures there.
The law in this area is in a bit of flux in Calfornia, particularly in the area of arbitration provisions in employment agreements. I strongly recommend you retain counsel to help you with the petition -- and to see if you even want to arbitrate in the first place. It may make sense for you to waive the arbitration provision and simply litigate in court.
I agree with the previous answers, but I'd like to add that the plaintiff has the right to file his complaint, and it's up to you to enforce the arbitration provision. In short, the plaintiff has forgotten the arbitration provision was included or thinks there is a good reason it shouldn't apply (undue influence, fraud, unconscionable, never agreed to, etc.).
General advice based on limited facts. No attorney-client relationship created.
The answers above are correct. The proper response to the complaint is to file a motion to compel arbitration. As long as there are no grounds to invalidate the arbitration provision in the contract, courts are likely to grant a motion to compel arbitration and send it to an arbitrator. California law favors enforcement of arbitration provisions. In fact, the California Supreme Court recently upheld an arbitration provision against a homeowners association even though the association was not in existence when the arbitration provision was created by the developer and inserted into the CC&Rs. That case is Pinnacle Museum Tower Association v. Pinnacle Market Development, 55 Cal. 4th 223 (2012).