The plaintiffs, Bo Avery, Phoebe Rogers, Kristy Camilleri, and Jill Unverferth, alleged that TEKsystems, a professional staffing agency that places IT consultants with business clients, had misclassified them as exempt from overtime laws, failing to pay overtime wages or provide required meal and rest breaks in violation of California labor laws. The case was filed initially in California state court but was removed to federal court by TEK. Over the ensuing months, the parties engaged in extensive discovery.
In September 2023, TEK internally approved expanding its longstanding mandatory arbitration policy – previously applied only to external consultants – to include internal employees like the recruiters.
The rollout communications criticized class actions as wasteful, inefficient, and primarily benefiting attorneys, while emphasizing arbitration’s efficiency. They were sent during the holiday season, contained inconsistencies about opt-out procedures and deadlines, and suggested employees consult their own attorneys at personal expense without mentioning free access to class counsel. A separate email targeted putative class members with an opt-out form specifically for remaining in the class action.
Plaintiffs moved for class certification on October 6, 2023, with briefing completing by December 14, 2023. Just five days later, on December 19, 2023, TEK rolled out a new mutual arbitration agreement to its internal employees, including putative class members. This agreement, which covered the claims in the lawsuit, was presented via email and deemed accepted through continued employment after December 31, 2023, unless employees opted out or quit.
Of 164 recipients, only 41 opted out to stay in the class. The class was certified on February 13, 2024, with notices issuing on April 16, 2024, and an opt-out deadline of June 15, 2024. On June 10, 2024 – after plaintiffs had moved for partial summary judgment and just days before the notice period closed – TEK filed a motion to compel arbitration against class members bound by the agreement.
The federal district court in the Northern District of California, denied TEK’s motion to compel arbitration. It found that TEK’s communications rolling out the arbitration agreement threatened the fairness of the litigation by being misleading and omitting key information, such as the availability of free consultation with class counsel and the status of the ongoing class certification process.
The court concluded that these actions subverted Federal Rule of Civil Procedure 23’s opt-out mechanism for class actions, effectively turning it into an opt-in process where inaction bound employees to arbitration and excluded them from the class. Invoking its broad authority under Rule 23(d) to manage class proceedings and ensure fairness, the district court refused to enforce the agreement. As an alternative basis, it also determined that TEK had waived its right to arbitrate by delaying the rollout for over 22 months into the litigation, engaging in a “wait-and-see” approach.
The Ninth Circuit Court of Appeals affirmed the district court’s denial of the motion to compel arbitration, declining to address the waiver issue and focusing instead on the Rule 23(d) grounds in the published case of Avery v TekSystems -3:22-cv-02733-JSC (January 2026)
The panel held that district courts possess the duty and expansive authority under Rule 23(d) to oversee class actions, including the power to invalidate arbitration agreements obtained through communications that undermine the integrity of the proceedings.
The appellate court’s rationale emphasized adherence to Supreme Court precedents, such as Gulf Oil Co. v. Bernard, 452 US 89 – Supreme Court 1981 and Hoffmann-La Roche Inc. v. Sperling, 493 US 165 – Supreme Court 1989 which grant district courts discretion to regulate contacts with class members and protect against abuses that could coerce or mislead them. The panel found TEK’s rollout communications to be inherently threatening to fairness: they disparaged class actions repeatedly as inefficient and attorney-enriching, were timed disruptively during the holidays, included conflicting instructions on how to opt out (such as deeming acceptance via continued employment while also requesting signatures), and implied personal legal costs without disclosing class counsel’s role.
These elements, combined with omissions about the lawsuit’s progress, risked confusing or pressuring class members into forgoing their rights under Rule 23’s opt-out framework, which presumes inclusion unless affirmatively excluded.
The court aligned its holding with similar decisions from the Fourth, Sixth, and Eleventh Circuits, rejecting TEK’s argument that the Federal Arbitration Act preempted such oversight by noting that Rule 23(d) applies neutrally to all contracts and does not disfavor arbitration. Furthermore, the arbitration agreement’s delegation clause – incorporating JAMS Rule 11(b), which assigns arbitrability disputes to the arbitrator – did not preclude the district court’s review, as the challenge targeted the agreement’s overall enforceability under procedural fairness rules rather than a specific provision.
Ultimately, the Ninth Circuit concluded that invalidating the agreement was a narrowly tailored remedy to restore the proper opt-out process, affirming the district court’s decision to safeguard the class action’s integrity.