Labor & Employment Law Daily Wrap Up, ARBITRATION—N.D. Cal.: Employee who brought putative class action must arbitrate the wage dispute individually, (Dec 16, 2025)

By Marjorie Johnson, J.D.

Though the arbitration agreement’s bellwether procedures and its representative PAGA waiver were substantially unconscionable, they could both be readily severed without undermining the main purpose of the contract.

A merchandise stocker, who brought a putative class action asserting that her former employer underestimated its employees’ actual travel time and failed to reimburse them for work-related travel expenses, must arbitrate her wage-and-hour claims individually and not as a class. Granting the employer’s motion to compel arbitration, a federal district court in California rejected her contention that the arbitration agreement was unconscionable in its duration, scope, mutuality, and/or inclusion of JAMS rules, and severed the over-restrictive bellwether procedures and PAGA waiver pursuant to the agreement’s severability clause (McKeown v. SAS Retail Services, LLC, No. 25-cv-03654-HSG (N.D. Cal. Dec. 12, 2025)).

The employee previously worked SAS Retail Services, LLC as a merchandise stocker, and in that role she was required to travel throughout the state. She claimed that SAS underestimated her and her coworkers’ actual travel time and failed to reimburse them for work-related expenses related to this travel. She brought this putative class action lawsuit against SAS and its affiliates (collectively, “the employer”) alleging wage and hour violations.

Arbitration agreement. The employer moved to compel arbitration, alleging that the employee electronically consented to a mandatory arbitration agreement through its online onboarding program. The agreement also provided that she could only arbitrate such claims in “an individual capacity,” and not as “class members in any purported class or collective proceeding.” Therefore, in addition to arguing that she was required to arbitrate her claims, the employer claimed she could only do so individually and not as a putative class claim.

Argues unconscionability. She did not dispute that the parties entered into an arbitration agreement. Rather, she argued that the agreement was unenforceable because it was procedurally and substantively unconscionable.

Contract of adhesion. The employee first argued that the agreement was procedurally unconscionable because it was a contract of adhesion. Noting that she signed the arbitration agreement as a condition of employment and was not given an opportunity to negotiate any of its terms, the court agreed, “at least to a small degree.”

JAMS rules. She attempted to strengthen her showing of procedural unconscionability by pointing to a provision in the agreement that incorporated the operative JAMS rules, which are subject to change at any time. However, the court rejected her suggestion that unconscionability existed based on the mere possibility that the rules could change in the future, Any changes would apply equally to both parties, and the agreement simply tracked the rules themselves. “In short, this appears to be a common provision that does not render the agreement unconscionable.” Given the low level of procedural unconscionability, the court turned to the issue of substantive unconscionability.

Not overly broad. The employee first argued that the arbitration agreement was substantively unconscionable in its broad scope since it applied to claims outside the employment context. Specifically, she pointed to a provision stating that it applied to “all claims or controversies.” However, when read in context, it was clear that the agreement only applied to claims arising from the parties’ employment relationship, and as such, was not overly broad.

The court emphasized that the first few lines of the agreement stated: “It is not uncommon for disputes to arise between an employer and an employee. Arbitration is a speedy, impartial and cost-effective way to resolve these disputes.” The agreement continued that it is “[f]or this reason” that the parties “agree to resolve in binding arbitration all claims or controversies....” Although in isolation “all claims or controversies” may appear detached from employment, the framing language suggested that the parties’ intent was to arbitrate claims arising out of the employment relationship.

This limitation was further highlighted in other provisions of the arbitration agreement. For example, it provided a non-exhaustive list of arbitrable “claims” that listed specific labor and employment laws, such as Title VII, the ADEA, and the FLSA. It similarly lists types of employment-related claims that were not covered—such as workers’ compensation and unemployment compensation claims. It also stated that it “shall survive the employer-employee relationship between the parties and shall apply to any covered Claim whether or not it arises or is asserted during or after termination of employment.”

Duration. The court also rejected the employee’s contention that the agreement was unconscionable because it was “indefinite.” Though she cited a California appeals court case affirming the trial court’s conclusion that an agreement was unconscionable because it survived indefinitely following the employee’s termination, that case was distinguishable since the agreement required the plaintiff to arbitrate all claims against her employer or other entities, regardless of whether they arose from her employment. In contrast, the arbitration agreement here was limited in scope to the employment context.

Mutuality. She also failed to convince the court that the agreement lacked mutuality because it required her to arbitrate claims against third-party entities and individuals other than her employer, including its parents, subsidiaries, affiliated entities, employees, clients, and customers. Notably, she failed to cite any case in which an arbitration agreement that was limited to the employment context was found substantively unconscionable because it included third-party beneficiaries.

Bellwether procedures. However, the agreement’s “bellwether procedures” were substantively unconscionable. They provided if more than 10 cases were pending with “substantially similar or overlapping allegations of fact or law,” then “[a]ll remaining cases will be stayed, with the statute of limitations tolled” until an opening arises. The agreement also provided a process for an employee to claim “unusual hardship” such that his or her case may be placed on the active list of 10 cases.

The employer highlighted that the statute of limitations is tolled, a stayed arbitration will proceed as soon as one (not all) of the active 10 arbitrations is resolved, and an employee can petition JAMS to prioritize his or her case based on hardship. Nevertheless, the court found that “it was enough for purposes of the unconscionability inquiry that the bellwether procedures would indefinitely delay the resolution of her claims.”

Here, there was no opt out procedure or default target for the amount of time any single arbitration may take. Moreover, even if the employee’s arbitration was initially allowed to proceed under the hardship procedures, the proceeding could be stayed at any time based on someone else’s hardship. “There was simply no adequate justification for forcing someone in Plaintiff’s position to wait an indefinite amount of time for other people’s claims to be resolved.”

Representative PAGA claims. The employee also argued that the arbitration agreement was substantively unconscionable because it prohibited her from participating in and recovering from all collective proceedings but did not include an exception for representative PAGA proceedings. The court agreed, noting that “the language of the agreement would appear to preclude her from bringing a representative PAGA case in the future or benefiting from any of the existing PAGA proceedings, even outside of arbitration” As the California Supreme Court has repeatedly stated, “an employee’s right to bring a PAGA action is unwaivable.” Accordingly, the waiver provision was substantively unconscionable to the extent it barred the employee from bringing or benefiting from any representative PAGA claims.

Severability. The court ultimately concluded that the bellwether procedures and representative PAGA waiver could both be readily severed without undermining the main purpose of the contract. The agreement’s severability provision specifically provided that, “[i]f any part of this Agreement is found to be void or unenforceable, that part will be severed and eliminated, and the rest of this Agreement will remain in full force, so that the parties’ mutual desire to create a binding agreement to arbitrate will be fulfilled.” In addition, the bellwether provision stated that its procedures only apply “[t]o the maximum extent permitted by law.” Accordingly, having severed these unconscionable provisions, the court found that the arbitration agreement was enforceable.

The case is No. 25-cv-03654-HSG.

Judge: Gilliam, H., Jr.

Attorneys: Drew T. Lewis (Law Offices of Drew Lewis) for Kristine McKeown. Aja S. Nunn (Paul Hastings) for SAS Retail Services, LLC.

Companies: SAS Retail Services, LLC

Cases: Arbitration ContractClaims StateLawClaims ClassActions WageHour CaliforniaNews