Author: Spencer Hamer
Arbitration Agreements in Class Actions
Employers considering new arbitration agreements during pending class action litigation should proceed carefully. In Avery v. TEKsystems, Inc., the United States Court of Appeals for the Ninth Circuit affirmed a district court’s refusal to enforce an arbitration agreement introduced more than 22 months after a wage-and-hour class action began and after briefing on class certification had closed.
The January 28, 2026 decision provides an important warning for employers in California and throughout the Ninth Circuit: although arbitration agreements and class action waivers can remain valuable tools for managing employment disputes, implementing them after litigation has begun can create significant enforceability risks when the rollout affects employees’ ability to participate in an existing class action.
What Happened in Avery v. TEKsystems?
The plaintiffs in Avery were current and former TEKsystems recruiters who alleged that the company had misclassified recruiters as exempt from state overtime requirements and failed to provide required meal and rest breaks.
The litigation began in January 2022. The parties then spent more than a year in discovery, and briefing on class certification concluded in December 2023.
Five days after that briefing closed, TEKsystems introduced a new mandatory arbitration agreement for its internal employees, including individuals who were potential members of the pending class action. Employees who remained employed after January 1, 2024, would generally be treated as having accepted the agreement unless they followed the applicable opt-out process.
That timing became critical to the Ninth Circuit’s analysis.
Why Did the Ninth Circuit Refuse to Enforce the Arbitration Agreement?
The court focused not simply on the existence of the arbitration agreement, but on the way it was implemented and communicated to employees.
Federal Rule of Civil Procedure 23 generally operates through an opt-out class action process. Once a class is certified, qualifying individuals generally remain members unless they affirmatively request exclusion.
TEKsystems’ arbitration rollout created the opposite practical effect. Employees who did nothing could become subject to individual arbitration and lose their ability to participate in the class litigation. The district court concluded that the process effectively transformed Rule 23’s opt-out structure into an opt-in system. The Ninth Circuit agreed that Rule 23(d) gave the court authority to address conduct that threatened the fairness of the class proceedings.
The Ninth Circuit also identified problems with the communications accompanying the arbitration rollout.
Among other issues, the communications characterized class actions as inefficient and primarily beneficial to attorneys, contained inconsistent information regarding arbitration opt-out deadlines, and suggested employees consult their own attorneys without clearly explaining the availability of class counsel. Some communications were also distributed during the holiday period, when employees were being asked to make decisions affecting their legal rights.
Taken together, the court concluded that the communications were misleading and threatened the fairness of the class action proceedings.
What Does Rule 23(d) Allow Courts to Do?
Rule 23(d) gives federal district courts substantial authority to manage class action proceedings and protect class members from communications or conduct that could interfere with the fairness of the litigation.
In Avery, the Ninth Circuit held that this authority can extend to refusing to enforce an arbitration agreement obtained through communications that improperly interfere with a pending class action. The Ninth Circuit noted that its approach is consistent with decisions from the Fourth, Sixth, and Eleventh Circuits.
The decision is particularly significant because the Federal Arbitration Act generally provides strong protections for written arbitration agreements. The Ninth Circuit nevertheless concluded that enforcing arbitration does not prevent courts from exercising their Rule 23(d) authority when the manner in which an agreement is obtained threatens an existing class proceeding.
The Delegation Clause Did Not Resolve the Problem
TEKsystems also argued that the arbitration agreement’s delegation provision — which sent disputes over the agreement’s “formation, existence, validity, interpretation or scope” to the arbitrator — meant an arbitrator, rather than the court, should determine whether the agreement was enforceable.
The Ninth Circuit rejected that argument in this context.
Under Rent-A-Center, W., Inc. v. Jackson and Coinbase, Inc. v. Suski, a delegation clause generally does send questions about the arbitration agreement’s validity to the arbitrator — unless the challenge is directed specifically at the delegation provision itself, or the challenge applies equally to the delegation provision and to the agreement as a whole. Here, the plaintiffs’ Rule 23(d) challenge attacked TEK’s entire Agreement — the delegation clause included — as the product of a misleading rollout. Because that challenge reached the delegation provision along with everything else, the district court, not the arbitrator, was the right forum to decide whether TEK’s conduct in obtaining the Agreement made it unenforceable.
That portion of the decision is a reminder that a delegation clause will not necessarily insulate an arbitration program from a challenge to how the underlying agreement was obtained, at least where the challenge reaches the delegation provision along with the rest of the agreement.
What Should Employers Learn From Avery?
Avery does not mean employers can never modify or introduce arbitration programs while litigation is pending. It does, however, demonstrate how closely courts may scrutinize the timing, language, and practical effect of a new arbitration agreement once a class or collective action has already been filed.
Employers should consider several issues before implementing or modifying an arbitration program:
- Timing matters. Arbitration agreements are generally less likely to create Rule 23 concerns when adopted as part of an established employment policy before a particular dispute or class action exists.
- Communications should be neutral and clear. Employers should avoid language that could be interpreted as discouraging participation in pending litigation or criticizing the merits of employees’ legal options.
- Deadlines must be consistent. Conflicting dates, acceptance provisions, or opt-out instructions can create confusion and increase the risk of a challenge.
- Pending litigation changes the analysis. Once a class action has been filed, communications with potential class members may be subject to greater judicial oversight.
- Coordinate employment and litigation strategy. HR, employment counsel, and litigation counsel should evaluate a proposed rollout together before communications are distributed to employees affected by a pending case.
For California employers in particular, Avery adds another important consideration to the development and administration of workplace arbitration programs.
The Bottom Line for Employers
Arbitration agreements with class and collective action waivers can be an important component of an employer’s dispute-resolution strategy. But Avery v. TEKsystems illustrates that when and how an arbitration agreement is implemented can be just as important as what the agreement says.
Employers whose workforces are not currently covered by arbitration agreements may benefit from evaluating those programs before litigation arises rather than waiting until a class action is underway. When litigation is already pending, any new arbitration rollout should be carefully reviewed for its potential impact on class members, Rule 23 procedures, and the enforceability of the agreement itself.