Plaintiffs are former TEK employees who worked as recruiters. Plaintiffs allege that TEK misclassified its recruiters as exempt from state overtime laws and failed to pay them overtime or provide meal and rest breaks. In January of 2022, a group of recruiters brought a class action against TEK on behalf of former and current California employees alleging wage-and-hour violations. (The case was subsequently removed to federal court.)  In September of 2023, TEK approved a plan to expand its mandatory arbitration policy to include its own employees, including TEK recruiters. On December 19, 2023, five days after class certification briefing had closed, TEK rolled out its new, mandatory Agreement, which came in two stages.  First, TEK sent an email to all internal employees. on the same day, TEK sent a second email to all recruiters who were members of the putative class with the subject line “Mutual Arbitration Agreement and Current Class Action Suit” which provided, among other things, that: “You may opt out of the arbitration agreement for the limited purpose of keeping your ability to participate in that lawsuit by signing and returning the attached agreement by January 9, 2023.” Of the 164 employees that received Email 2 and the Opt-Out, 41 employees opted out to remain eligible class members.

In February of 2024, the district court held a class certification hearing, at which TEK did not raise the issue of arbitration. The district court granted Plaintiffs’ motion and approved class notice which gave members until June 15, 2024, to opt out of the class. On June 10, 2024, TEK filed its motion to compel arbitration against members of the putative class bound by the Agreement, which was denied on two grounds. First, the district court found that FRCP 23(d) gives district courts broad authority to regulate the notice and opt-out process and to impose limitations when a party’s conduct threatens the fairness of the litigation. The district court noted that courts routinely exercise this discretion to invalidate or refuse to enforce arbitration agreements implemented during a pending class action that interfere with class members’ rights. The district court then concluded that TEK’s communications “threatened the fairness of the litigation because the communications were misleading and omitted key information.”  The district court noted that TEK made disparaging comments regarding class actions multiple times, which “appear designed to prevent putative class members from opting into the lawsuit and opting out of the Agreement.” Further, the district court found the communications misleading for many reasons: (1) a recipient may think they personally have to pay “exorbitant fees” as a member of the class; (2) TEK did not tell class members they could consult with Plaintiffs’ counsel without paying out of pocket; (3) TEK did not readily provide Plaintiffs’ counsel’s contact information, but required them to click through multiple links, and then locate the contact information on a copy of the complaint; (4) TEK warned employees that they could not share the emails with others; (5) TEK did not explain that class certification had been briefed and was scheduled to be decided early the next year; and (6) TEK did not provide a copy of the class certification pleadings. The timing of these communications was “especially concerning” as TEK’s emails “were the first communication many putative class members received about the case.”  Additionally, the district court found the two emails contradictory. In the alternative, the district court also found that TEK waived its right to compel arbitration of the claims of certified class members. TEK had employed wait-and-see conduct during the litigation that was inconsistent with the right to arbitrate. Further, TEK knew of its right to impose a mandatory arbitration agreement even before it removed the action on May 6, 2022, but waited until 18 months into the litigation to impose arbitration on December 19, 2023.

The U.S. Ninth Circuit affirmed:

“FRCP 23(d) authorizes a district court to refuse to enforce an arbitration agreement.  Under FRCP 23, class actions are an opt-out process in which class members are included within a certified class unless class members request exclusion from the class…. Because of the potential for abuse, a district court has both the duty and the broad authority to exercise control over a class action and to enter appropriate orders governing the conduct of counsel and parties.

“TEK argues that under the FAA, arbitration agreements are valid and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract. TEK claims that FRCP 23(d) does not qualify because it is only a procedural rule and is not a substantive mechanism rooted in state or common law for defeating contracts. However, arbitration agreements can be invalidated based on federal procedural rules… If an ordinary procedural rule — whether of waiver or forfeiture or what-have-you — would counsel against enforcement of an arbitration contract, then so be it. The federal policy is about treating arbitration contracts like all others, not about fostering arbitration.  FRCP 23(d) serves as an ordinary federal procedural rule that treats arbitration contracts like other contracts and permits district courts to invalidate any contracts that disrupt the class action process.

“Finally, TEK argues that FRCP 23(d) cannot override the FAA because there is no inference of a contrary congressional command as FRCP 23(d) and the FAA do not conflict. However, there does appear to be an inherent conflict between the FAA and FRCP 23 in this case. FRCP 23 establishes an opt-out process for class actions. The district court has broad authority under FRCP 23(d) to control the opt-out process. TEK’s actions ultimately sought to interfere with FRCP 23’s fundamental opt-out procedures by changing it from an opt-out process to an opt-in process through the Agreement.”

 

Avery v. TEKsystems, No.24-5810, 2026 WL 218992 (9th Cir. Jan. 28, 2026)