How To Avoid Arbitration Pitfalls During Class Actions: Insights from Avery v. TEKsystems

On January 28, 2026, the Ninth Circuit issued its opinion in Avery v. TEKsystems, Inc., 165 F.4th 1219 (9th Cir. 2026), affirming the district court’s denial of an employer’s motion to compel arbitration. The employer had introduced a new, mandatory arbitration agreement to putative class members while a class action was already pending. The decision underscores the broad authority of district courts under Rule 23(d) to protect the integrity of the class action process and carries important implications for businesses that maintain, or are considering adopting, arbitration provisions in their terms of service or employment agreements.

Background: Ninth Circuit’s Review in Avery v. TEKsystems

Plaintiffs, former recruiters for TEKsystems, filed a putative class action in January 2022 alleging wage and hour violations under California law, including misclassification as exempt employees. Although TEKsystems had long required its external consultants to sign arbitration agreements, it had never imposed that requirement on internal employees.

On December 19, 2023, five days after class certification briefing had closed, TEKsystems rolled out a new, mandatory arbitration agreement for all internal employees, including putative class members. The rollout consisted of two emails. The first email criticized class actions as “wasteful” and “inefficient,” warning that class participants could face “exorbitant fees” from lawyers. It further stated that employees would be deemed to have accepted the agreement by continuing to work after December 31, 2023. The second email, sent only to putative class members, disclosed the pending lawsuit and offered a limited opt-out option with a deadline of January 9, 2024.

Of the 164 class members who received the opt-out notice, only 41 opted out. After the court certified the class and approved the class notice, which allowed members until June 15, 2024, to opt out, TEKsystems moved to compel arbitration against the remaining class members days before the notice period expired.

The district court denied the motion to compel arbitration, and the Ninth Circuit affirmed on three key grounds.

1. Authority Under Rule 23(d): District courts may refuse to enforce arbitration agreements obtained through conduct that undermines the fairness of class proceedings, particularly where an agreement attempts to turn Rule 23’s opt-out process into an opt-in process.
2. Misleading and Problematic Communications: TEKsystems’s messages were found misleading because they disparaged class actions, contained inconsistent opt-out information, failed to disclose that class members could consult plaintiffs’ counsel at no cost, and were sent during the holiday season with only 13 days before the agreement took effect.
3. Appropriate Remedy: The Ninth Circuit agreed that full invalidation, rather than corrective notice, was necessary to restore the Rule 23 opt-out framework, and that the district court properly decided enforceability rather than delegating that question to the arbitrator.

Considerations for Businesses Using Arbitration Agreements

The Avery decision offers several practical lessons for businesses navigating the intersection of arbitration provisions, class action exposure, and terms of service:

Establish strong terms of service from the outset. TEKsystems implemented its arbitration policy only after class certification briefing closed, a fact central to the court’s analysis. Businesses that want an arbitration provision and class action waiver in their terms should consider implementing them early on, rather than adopting them reactively once litigation is underway.

Revisit terms as the business evolves. TEKsystems required arbitration for external consultants but did not extend that requirement to internal employees until litigation forced the issue. Consider regularly reviewing dispute resolution provisions to ensure they align with the business’s current operations and risk profile.

Assess the class action versus arbitration trade-offs at every stage. Switching from class litigation to individual arbitration mid-case carries substantial risk, especially if it disrupts the Rule 23 opt-out process. Consider working closely with counsel to evaluate the relative advantages and drawbacks of arbitration versus class litigation before a case is filed, during ongoing disputes, and in connection with class certification decisions.

Plan for mass arbitration risk early. Class action waivers can deflect class action litigation but may expose businesses to mass arbitration, when hundreds or thousands of individual demands are filed at once. Consider this risk when designing arbitration provisions. The choice of arbitration provider matters: Arbitral organizations can differ considerably in their administration processes, rules, and fee structures. Notably, the American Arbitration Association recently overhauled their Consumer Arbitration Rules.

Obtain clear, informed consent to any agreements. The court criticized TEKsystems for “deeming” employees to have accepted its arbitration agreement simply by continuing to work past a deadline, coupled with misleading communications about their rights. Businesses should ensure they obtain clear, affirmative consent, particularly for online or electronic agreements, where courts increasingly scrutinize the adequacy of notice and assent.

Key Takeaways

Avery v. TEKsystems is a reminder that timing and transparency matter when implementing arbitration agreements where there is a pending class action litigation. The Ninth Circuit’s decision confirms that district courts have broad authority under Rule 23(d) to invalidate arbitration agreements obtained through misleading or coercive means. Businesses should consider taking a proactive approach to dispute resolution: Design policies thoughtfully, revisit them as operations change, and ensure they are supported by clear, informed consent.