On Jan. 28, 2026, the Ninth Circuit Court of Appeals in Avery v. TEKsystems, Inc. affirmed a district court order refusing to enforce an arbitration agreement rolled out during class litigation. The court found that the agreement contained misleading, harmful, and inaccurate information, and that it subverted federal rules by turning the federal class action opt-out procedure into an opt-in process. This decision may have implications for employers attempting to defeat class certification by implementing arbitration agreements mid-litigation.
Background of the Case
In 2022, four former recruiters brought a putative class action against TEKsystems, Inc. (TEK), an IT staffing agency, alleging misclassification of recruiters as exempt from California’s overtime and break laws. The plaintiffs claimed unpaid overtime and missed meal and rest breaks, along with other derivative claims.
After nearly two years of litigation and completion of class certification briefing, TEK implemented mandatory arbitration agreements for internal employees. The agreement, which included a class action waiver, was deemed accepted if employees continued working for TEK, regardless of whether it was signed.
TEK’s communications to employees described arbitration as a “more efficient and cost effective” dispute resolution method and said that class actions were “wasteful,” “inefficient,” and “ignore[d] individual employee issues and concerns.” TEK also notified putative class members of the ongoing class action and provided them with the opportunity to opt out of the arbitration agreement by submitting a signed form within a specified period. Although TEK advised putative class members that they could consult an attorney, limited time was provided, and the communication warned that attorneys often charge “exorbitant fees.”
In February 2024, the court certified plaintiffs’ claims. TEK subsequently moved to compel arbitration for class members subject to the new arbitration agreements. The district court denied this motion, finding that TEK’s communications were misleading, omitted key information, and threatened the fairness of litigation. TEK appealed.
Ninth Circuit’s Decision
The Ninth Circuit held that Federal Rules of Civil Procedure 23(d)—which provides courts the power to regulate class actions—allows courts to refuse to enforce arbitration agreements when a party engages in conduct that threatens the fairness of litigation.
The court found that TEK’s requirement for employees to opt out of the arbitration agreement—rather than automatically including them in the class action unless they opted out—circumvented the procedures established by Rule 23. The court also noted that TEK’s communications contained disparaging language regarding class actions, confusing instructions for opting out, and appeared to be designed to prevent class members from participating in the lawsuit. The court was also concerned with the timing of TEK’s rollout of the arbitration agreements, which were sent just a few days before the holidays when employees might be out of the office or unable to secure legal advice.
Based on these factors, the Ninth Circuit concluded that the one-sided nature of the communications jeopardized the fairness of the litigation and upheld the invalidation of TEK’s arbitration agreement.
Key Considerations for Employers
Employers considering the implementation of arbitration agreements—especially during ongoing litigation—may wish to ensure that any agreements and related communications are clear, accurate, and do not discourage participation in class actions.