While precedential for federal cases only, the Ninth Circuit’s recent decision in Avery v. TEKsystems, Inc. offers a pointed reminder to California employers that rolling out new mandatory arbitration agreements in the middle of a pending class action – particularly when done through aggressive and one‑sided communications – can result in those agreements being invalidated for the class as a whole. In Avery, a group of California recruiters sued TEKsystems, a staffing company, alleging they were misclassified as exempt and denied overtime, and meal and rest breaks in violation of California law. The case proceeded in federal court as a putative class action under Rule 23 of the Federal Rules of Civil Procedure on behalf of current and former recruiters. More than a year into the litigation, after extensive discovery and once class certification briefing had closed, TEKsystems rolled out a new mandatory arbitration agreement for its internal employees, including the putative class members. The agreement, introduced just before the holidays, applied to a list of “covered claims” that included the claims alleged in Avery, incorporated a class and collective action waiver, and deemed acceptance through continued employment after January 1, 2024, regardless of signature.

The company rolled out the program through two coordinated emails and a supplemental opt‑out notice. The first email, sent to all internal employees, framed arbitration as commonplace and “more efficient and cost effective” and asserted that litigation in court – “particularly class and collective actions” – is “wasteful, inefficient” and tends to “enrich only attorneys rather than the individuals who may have legitimate claims.” It explained that employees would be required to pursue covered claims in individual arbitration, that TEKsystems would pay arbitration costs minus a filing fee, and that continued employment after December 31, 2023, would be treated as acceptance. A linked “FAQ”, prepared by TEKsystems, reiterated that class claims must be waived and repeated the theme that class actions mainly benefit lawyers, not employees. The second email, sent the same day only to putative class members, acknowledged the pending Avery lawsuit and attached a “Notice of Right to Opt‑Out of Mutual Arbitration Agreement for Limited Purpose.” That notice informed recipients that unless they separated from employment before January 1, 2024 or returned the opt‑out form by January 9, 2024, TEKsystems would take the position that, if a class were certified, they could not participate and could bring claims only in individual arbitration. The notice linked to the Avery complaint, which contained class counsel’s contact information, and said employees were “free to consult your attorney,” but elsewhere the company’s communications described class counsel as charging “exorbitant fees” and instructed employees not to share the emails with others. Out of 164 class members who received the opt‑out notice, 41 opted out and 123 did not.

The district court ultimately denied TEKsystems’ motion to compel arbitration, concluding that the company’s communications “threatened the fairness of the litigation” and effectively converted the federal opt‑out structure into an opt‑in regime. Relying on Federal Rule of Civil Procedure 23(d), the court refused to enforce the arbitration agreements for the class. On appeal, the United States Court of Appeals for the Ninth Circuit affirmed. The appellate court emphasized that federal district courts have broad authority to oversee class communications and the opt‑out process, including the power to remedy misleading or coercive communications that affect class members’ participation in the case. That authority, the court held, includes declining to enforce arbitration agreements obtained through such communications. The Ninth Circuit pointed to several aspects of TEKsystems’ conduct: repeated disparagement of class actions as wasteful and attorney‑driven; internally inconsistent messaging in which one email treated arbitration as mandatory with no opt‑out, while a same‑day follow‑up introduced a limited opt‑out tied to a lawsuit many employees had not previously heard of; the timing of the rollout on December 19 with a January 1 effective date and a January 9 opt‑out deadline during the holiday season; and the failure to clearly inform employees that they could consult class counsel without out‑of‑pocket cost, combined with instructions not to share the emails. Together, these features persuaded the court that TEKsystems had used the mid‑litigation arbitration rollout to undermine the opt‑out framework and shrink participation in the Avery class.

For California employers, Avery carries important practical consequences, particularly for companies that routinely implement annual policy updates that include arbitration agreements. This is because, for California’s equivalent statute – Code of Civil Procedure section 382 – California courts often look to FRCP 23 and related federal decisions as persuasive authority, especially where California precedent is sparse. 

The Avery decision does not bar employers from updating arbitration programs mid‑year or from extending existing arbitration agreements to existing employees. It does, however, signal that when a putative class action is already on file covering the affected employees, courts will scrutinize not just the wording of the agreement but the context and manner of its rollout. A mid‑litigation implementation that materially affects class members’ rights – by imposing a class waiver, by channeling claims to individual arbitration, or by conditioning continued employment on acceptance – may be viewed as an effort to erode or reconfigure the class, and thus fall squarely within the court’s supervisory powers. Communications that disparage class actions, obscure the status of pending litigation, or downplay the ability to obtain independent legal advice increase the risk that a court will find them misleading or coercive and refuse to enforce resulting agreements for the class. Requiring that choices be made at a time that makes it difficult for employees to seek counsel, such as pushing through significant legal changes just before holidays with short response deadlines, can likewise become evidence that the process was unfair.

In practical terms, employers that regularly roll out arbitration agreements as part of annual updates should carefully consider the implications of a pending class action lawsuit. Avery makes clear that a court’s supervisory role over class actions includes the power not only to police future communications to class members but, when necessary, to strip mid‑litigation arbitration agreements of effect to preserve the integrity of the class device and the default federal opt‑out structure.

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