When a New Arbitration Agreement Arrives in the Middle of a Class Case
The Ninth Circuit’s decision in Avery v. TEKsystems, Inc. is an important reminder that an arbitration agreement is not judged only by its words on paper. Courts will also look hard at how that agreement was introduced, what employees were told about it, what they were not told, and whether the rollout distorted the fairness of an already pending class action.
For businesses that rely on arbitration programs, the lesson is not that arbitration is suspect. It is that a late-stage attempt to impose a new arbitration agreement on putative class members can fail if the surrounding communications appear designed to suppress informed choice. For attorneys advising employers, this case is a warning about process. For plaintiffs’ counsel, it is a useful roadmap for attacking a midstream rollout that looks more tactical than fair.
At its core, Avery was not really about whether arbitration is generally enforceable. The Ninth Circuit accepted the usual premise that arbitration agreements are ordinarily enforceable under the Federal Arbitration Act. The problem for TEKsystems was that the company tried to implement a new mandatory arbitration agreement after class-certification briefing had already closed, and it did so through communications the district court and the Ninth Circuit found misleading and unfair in the context of a pending Rule 23 case.
What TEKsystems Tried to Do
According to the opinion, TEKsystems rolled out a new mandatory arbitration agreement to internal employees in December 2023. The first communication told employees that if they continued working after December 31, 2023, they would be deemed to have accepted the agreement. That message also praised arbitration and disparaged class actions, describing court litigation, especially class and collective actions, as wasteful and as something that tends to enrich lawyers rather than people with claims.
Then came a second communication directed to the recruiters who were part of the putative class. That email told them that they could opt out of the arbitration agreement for the limited purpose of remaining in the pending lawsuit. But even that supposed opt-out opportunity came with its own problems. The email referenced a January 9, 2023 deadline, while the attached opt-out form referenced January 9, 2024. The first email suggested that continued employment meant acceptance as of January 1, 2024. The second suggested there was still time to opt out after that. The overall message was muddled, internally inconsistent, and delivered during the holiday season.
That mattered.
The Ninth Circuit emphasized that Rule 23 class actions are ordinarily opt-out proceedings. In other words, absent class members remain in the case unless they choose exclusion. TEKsystems’ rollout effectively flipped that structure. Instead of allowing the normal Rule 23 process to work, the company attempted to move current employees into individual arbitration unless they affirmatively acted to preserve participation in the class case. The court viewed that as an effort to convert an opt-out class process into something closer to an opt-in regime.
Why the Court Rejected the New Agreement
The court did not hold that employers are forbidden from implementing arbitration agreements while litigation is pending. But it did hold that district courts have broad authority under Rule 23(d) to protect the fairness of class proceedings, including the authority to refuse enforcement of an arbitration agreement obtained through misleading communications.
The opinion identifies several features of the rollout that doomed TEKsystems’ effort.
First, the company repeatedly disparaged class actions in a way the court found inaccurate and slanted. It was not just that TEKsystems preferred arbitration. The communications framed class actions as wasteful, inefficient, and primarily beneficial to attorneys. The court concluded that this language appeared designed to discourage employees from staying in the lawsuit.
Second, the communications were confusing. One email said continued employment meant acceptance and asked for a signature that apparently had no real legal effect. Another email said a signature was needed for the opt-out. The deadlines also clashed. For employees receiving these messages quickly and during the holidays, the process was hardly a model of clarity.
Third, the court focused on what TEKsystems omitted. Employees were told they were free to consult an attorney, but the company did not clearly explain that class counsel could be contacted about the opt-out issue without the employee personally paying fees out of pocket. That omission mattered even more because TEKsystems had also criticized attorneys’ fees in the same set of communications. The court saw that combination as likely to mislead employees about whether obtaining advice was practically available.
Fourth, the timing was a problem. The rollout occurred after class-certification briefing had closed and during the holiday season, when employees were less likely to focus on email or promptly seek legal advice. Context mattered just as much as content.
Put together, those facts led the Ninth Circuit to agree that the communications threatened the fairness of the litigation. That was enough for the district court to refuse enforcement of the new arbitration agreement under Rule 23(d).
Why a Corrective Notice Was Not Enough
One of the more significant parts of the decision is the court’s remedy analysis. TEKsystems argued that even if the communications were flawed, the district court should have issued some lesser corrective notice rather than invalidating the agreement as to the affected class members.
The Ninth Circuit rejected that position. It reasoned that a corrective notice would not solve the real problem, because employees had already entered into the agreement through a process the court found misleading. Simply clarifying matters later while still holding employees to those agreements would not restore fairness. In the court’s view, invalidation was necessary because it restored the default Rule 23 opt-out structure that TEKsystems’ rollout had disrupted.
That is an important practical point. Courts are often reluctant to throw out arbitration agreements altogether. But Avery shows that when the method of obtaining assent is itself the problem, the remedy can be more aggressive than a curative notice or revised explanation.
Why the Delegation Clause Did Not Save the Agreement
TEKsystems also pointed to the agreement’s incorporation of JAMS rules, including a delegation provision sending arbitrability issues to the arbitrator. Normally, that argument can be powerful.
Not here.
The Ninth Circuit held that because the plaintiffs challenged the validity of the very agreement TEKsystems was trying to enforce, the court had to decide that issue before ordering arbitration. So the delegation language did not prevent judicial review of whether the agreement itself should be enforced in light of the misleading rollout. The court treated that as a threshold issue for the judge, not the arbitrator.
What This Means for Employers and Counsel
The real takeaway from Avery is straightforward. A company that wants the benefits of arbitration must be just as careful about implementation as it is about drafting.
A well-written arbitration clause can still fail when it is introduced at the wrong time, to the wrong audience, with the wrong message. Rolling out a new program after a class case is already well underway is inherently sensitive. If the communication appears one-sided, confusing, coercive, or strategically timed to shrink the class, a court may view the effort as an abuse of the Rule 23 process rather than a neutral employment policy update.
That does not mean arbitration programs should be abandoned. It means they should be designed and communicated with discipline. Clear language matters. Consistent deadlines matter. Neutral explanations matter. And in pending litigation, appreciating how the rollout interacts with class procedures matters a great deal.
For businesses facing employment, consumer, or other aggregate disputes, this opinion is a reminder that dispute-resolution strategy should not be improvised after the lawsuit is already moving. The better course is to think about enforceability early, communicate carefully, and avoid any rollout that could be portrayed as an effort to sidestep informed decision-making by employees or claimants.
That is also where experienced neutrals can add value. In high-stakes business, tort, consumer, and employment matters, the best resolution strategies are rarely limited to winning a motion. They often involve stepping back, assessing exposure realistically, and choosing a process that will hold up under scrutiny. Arbitration and mediation remain powerful tools, but only when the surrounding strategy is as sound as the clause itself.
For parties navigating those kinds of disputes, Nationwide ADR’s focus on arbitration and mediation is built around exactly that kind of practical, balanced problem-solving.