McKeown v. SAS Retail Services

Background

Kristine McKeown filed a putative wage-and-hour class action in Alameda Superior Court. She alleged that SAS Retail Services, LLC provides retail merchandise stocking services, that she worked as a merchandise stocker and traveled throughout California, and that SAS underestimated employees’ actual travel time and failed to reimburse work-related travel expenses. She sought to represent a class of non-exempt California employees who continued to work for SAS. The defendants removed the action to federal court under the Class Action Fairness Act.

The defendants moved to compel arbitration. They presented records stating that McKeown electronically accepted an arbitration agreement in April 2024 through SAS’s online onboarding program. McKeown acknowledged that she electronically signed the onboarding documents, including the arbitration agreement.

The agreement required binding arbitration of covered claims against the company and specified affiliated entities and other listed parties. It defined covered claims to include statutory, contract, and common-law employment claims, including claims under the California Labor Code and the Fair Labor Standards Act. It also required claims to be brought individually rather than as part of a class or collective proceeding. The agreement included procedures limiting the number of similar arbitrations that could proceed at one time and stated that the parties waived rights to bring, maintain, participate in, or receive money from class or collective proceedings.

McKeown’s Unenforceability Arguments

McKeown argued that the agreement was unconscionable, meaning unfairly oppressive or one-sided under California law. The court explained that a party resisting arbitration bears the burden of proving both procedural and substantive unconscionability.

The court found a low degree of procedural unconscionability because the agreement was presented as a condition of McKeown’s employment and she had no opportunity to negotiate its terms. The court rejected her argument that incorporating JAMS Employment Arbitration Rules made the agreement unfair merely because those rules could change. The court noted that McKeown received a usable link to the rules, the rules had not changed since her employment began in 2024, and any changes would apply equally to both sides.

McKeown also challenged the agreement’s substance. She argued that it was too broad, lasted indefinitely, lacked mutuality because it covered claims against non-signatory third parties, failed to clearly allocate arbitration costs for claims involving third parties, imposed bellwether procedures, and waived representative claims under California’s Private Attorneys General Act, or PAGA.

The court interpreted the agreement as covering claims arising from the employment relationship, rather than every possible claim. It therefore rejected the challenges based on the agreement’s scope, duration, third-party coverage, and cost allocation. The court also found that the bellwether procedures were substantively unconscionable because they allowed only ten substantially similar cases to proceed at one time, could indefinitely delay McKeown’s claims, and provided no opt-out or fixed time limit for resolving the active cases.

The court separately found substantively unconscionable the provision that appeared to waive McKeown’s ability to bring or benefit from representative PAGA claims. The court stated that such rights cannot be waived under California law. McKeown had not pleaded a PAGA claim in this action, but the court read the agreement as potentially barring her from bringing or benefiting from one outside arbitration as well.

Severability and Disposition

The court concluded that the unconscionable provisions did not make the entire arbitration agreement unenforceable. The agreement contained a severability provision, and the court determined that the bellwether procedures and representative PAGA waiver could be removed without undermining the parties’ main intent to arbitrate employment-related claims.

The court therefore GRANTED the motion to compel arbitration. It severed the bellwether procedures and the representative PAGA waiver, leaving McKeown’s individual employment-related claims subject to arbitration. The court STAYED the case pending resolution through arbitration of those individual claims. The parties must file status reports every 120 days and notify the court within 48 hours of a final decision. The order states that the decision is without prejudice to McKeown asserting a representative PAGA claim outside arbitration.