Ninth Circuit Court of Appeals
In Avery v. Teksystems, Inc., the Ninth Circuit addressed whether an employer could enforce arbitration agreements that were introduced during the middle of a wage and hour class action. The decision highlights the limits of employer communications with employees once a class action is already underway.
The case involved a putative wage and hour class action filed against Teksystems, Inc. After the litigation had been pending for more than a year—and after briefing on class certification had already closed—the employer rolled out a new mandatory arbitration agreement to employees. The agreement required employees to resolve claims through individual arbitration and prohibited participation in class actions. Teksystems then attempted to rely on these agreements to compel arbitration and remove potential class members from the lawsuit.
The district court denied the employer’s motion to compel arbitration, finding that the rollout of the agreement raised concerns about fairness in the class action process. The Ninth Circuit affirmed that decision.
The court explained that Federal Rule of Civil Procedure 23(d) gives district courts the authority to manage communications with potential class members and to protect the integrity of class proceedings. Here, the court found that Teksystems’ communications were problematic because they effectively turned Rule 23’s opt-out framework into an opt-in system. Employees were asked to sign arbitration agreements that waived their ability to participate in the class action.
The court also noted that the employer’s communications included misleading and disparaging statements about class actions, provided confusing instructions and deadlines, and did not clearly inform employees that they could consult class counsel at no personal cost.
Because of these concerns, the Ninth Circuit held that the district court had the authority under Rule 23(d) to refuse enforcement of the arbitration agreements. The court also rejected the employer’s argument that the agreement’s delegation clause prevented the court from deciding enforceability, concluding that the district court could address the validity of the agreement as a whole.
