The Ninth Circuit’s recent ruling in Avery v. TEKsystems, Inc. (9th Cir. 2026) 165 F.4th 1219, invalidating an arbitration agreement rolled out during pending litigation emphasizes the importance of clear communication with putative class member employees and what employers must avoid should they choose to roll out arbitration agreements amidst an ongoing lawsuit.
Background
In Avery, former recruiter employees of TEKsystems, Inc. (“TEK”) filed a putative class action alleging that recruiter employees had been misclassified as exempt employees. TEK removed the case to federal court and the parties then engaged in discovery, motion practice, and class certification briefings for over a year.
On December 19, 2023, right before the holidays and while the litigation was still ongoing, TEK rolled out its arbitration agreement which included a class and collective actions waiver via two emails.
The first December 19 email, sent to all TEK employees, attached the arbitration agreement and stated that employees who remained employed after January 1, 2024, would be deemed to have accepted the arbitration agreement—essentially binding employees through inaction. Additionally, the email contained statements explaining that the company was implementing arbitration agreements because in the company’s experience, “litigation in court – particularly class and collective actions – are wasteful, inefficient means for resolving disputes, and tend to enrich only attorneys rather than the individuals who may have legitimate claims.”
Later that same day, a second email was sent only to current recruiter employees – i.e., putative class members. That email notified recruiter employees - for the first time - that there was a pending class action and provided a link to the complaint. It also informed recruiter employees that if they wanted to exclude the claims in the pending litigation from arbitration, they could sign and submit a limited opt-out of the arbitration agreement. So, to remain in the putative class, employees had to sign an attached opt-out form by January 9, 2024; otherwise, they would be bound by the arbitration agreement and excluded from the class action. The email also instructed recruiter employees not to share the email with others. Only 23% of recruiter employees submitted the opt-out form by the deadline.
TEK moved to compel arbitration against employees who did not opt-out just days before the class notice period closed.
The district court refused to enforce the arbitration agreement, which the Ninth Circuit Court of Appeals affirmed.
Holding
The court invalidated the arbitration agreement under its authority to prevent misleading and/or coercive communications to putative class members. See Federal Rule of Civil Procedure Rule 23(d). The court took issue with several aspects of the arbitration agreement rollout and concluded it was misleading/coercive because:
- Statements about the nature of class actions were designed to discourage participation.
- There were mixed and confusing messages about whether employees needed to sign. The first email stated that employees did not need to sign and that they would be bound by the arbitration agreement. But the second email stated employees needed to sign the opt-out to remain part of the pending litigation.
- The arbitration agreement was rolled out mid-December and became effective at the beginning of January – i.e., around holidays when people are less responsive. So, putative class members had a short period of only 13 days to review the communication, consult an attorney, and make a decision regarding the arbitration agreement.
- There were different deadlines for when the arbitration agreement became effective and when putative class members could opt out, creating confusion as illustrated by the low 23% rate of putative class members who chose to opt out of the arbitration agreement.
- While putative class members were advised that they could consult an attorney about the arbitration agreement and given a link to the complaint, they were also instructed not to share the email.
- TEK’s communications provided conflicting information on what employees can share with a lawyer, implied employees needed to hire and pay for their own lawyers, and did not clearly indicate employees could consult plaintiff’s counsel without paying out of pocket.
Key Takeaways for Employers
- Employers should proactively implement arbitration agreements prior to being sued.
- Evaluate – with assistance from experienced counsel – whether a new arbitration agreement should include or exclude pending litigation.
- If rolling out an arbitration agreement to cover pending litigation, the agreement and any communications must delineate the pending litigation, including nature of claims and impact of the arbitration agreement on participation in pending and future litigation in a neutral manner. The agreement should be completely voluntary and non-coercive, and employees should have sufficient time to review the agreement, ask questions, and consult an attorney. Simply put, there must be clear, informed consent and knowing waiver for the arbitration agreement to be enforceable.
Employers looking to take a more proactive approach to arbitration strategy may also want to join CDF’s upcoming webinar:
- CDF Webinar: The High Stakes of Employment Arbitration: Risks, Strategy, and Recent Developments
- April 30, 2026, at 10:00 a.m. Pacific.
- CDF partners Lindsay Ayers and Avi Attal will discuss recent case law developments, arbitration agreement drafting and rollout pitfalls, front-end clause strategy, forum and arbitrator selection, key rules and procedures, hearing strategy, and arbitration awards, with practical takeaways for California employers.
- Register HERE.
If you have any questions regarding arbitration agreements, contact your favorite CDF attorney, and subscribe to CDF’s California Labor & Employment Law Blog to ensure you stay up-to-date on future developments.
