Ninth Circuit Rules That Federal Courts May Invalidate Arbitration Agreements Implemented to Subvert an Ongoing Class Action

In a class action against an employer, Avery v. Teksystems, 165 F.4^th 1219 (9^th Cir. 2026), a subset of employees (recruiters) alleged misclassification as exempt from overtime laws and other protections. The parties had engaged in over a year of discovery and had fully briefed plaintiffs’ motion for class certification when the employer rolled out a mandatory arbitration agreement and class waiver. The rollout communications included assertions that the court found misleading and disparaging of class actions, such as:

• “[L]itigation in court—particularly class and collective actions—are wasteful, inefficient means for resolving disputes.”
• “A class claim requires the Company to ignore individual employee issues and concerns.”
• “The class” might be charged “exorbitant fees” by lawyers.

The communication stated that the arbitration agreement will be deemed accepted if the employee remains employed as of January 1, 2024 (just 13 days after the announcement).

The same day, the company sent a second email only to members of the putative class stating that they could choose to “opt out of the arbitration agreement for the limited purpose” of staying in the class, and that the opt-out must be exercised by January 9, 2024.

Thereafter, the court certified the class and approved the class notice, which gave class members until June 15, 2024, to opt out of the class. Five days before the class notice period ended, the company filed its motion to compel arbitration against members of the putative class bound by the arbitration agreement.

The district court denied the motion to compel arbitration, and the Ninth Circuit affirmed. District courts have “broad authority under FRCP 23(d) to control the opt-out process,” which “includes the authority to decline to enforce an arbitration agreement.” As the Ninth Circuit stated, “[The company’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 [arbitration] [a]greement.”

The court acknowledged that “there does appear to be an inherent conflict between the [Federal Arbitration Act] and FRCP 23” with regard to enforceability of arbitration agreements, but found that “the remedy of cancellation of improperly obtained contracts” was proper: “There would be no point to FRCP 23(d)’s broad authority to oversee class action communications if the authority stopped when a party’s misleading communications with class members resulted in an agreement before the district court intervened.” The court found that the company’s “disparaging comments appear[ed] designed to prevent putative class members from opting into the lawsuit and opting out of the [arbitration agreement].” The messaging was also internally inconsistent regarding deadlines, did not indicate that class members could consult class counsel for legal advice for free, and was timed to coincide with the last two weeks of the year when employees would be less likely to read a work email.

Lessons? Do not count on mid-litigation arbitration agreements with class action waivers being deemed enforceable for purposes of the ongoing litigation. Consult with counsel before rolling out mid-litigation arbitration agreements. You may want to consider getting your communication language cleared by the court first. If you do not get your messaging cleared by the court first, you need to make sure your rollout does not turn an opt-out class into an opt-in class, and does not discourage class participation or disparage class actions, especially in a misleading way. You will also want to make sure the communication to class members prominently displays the contact information of the plaintiffs’ counsel and notes that the recipient may reach out to plaintiff’s counsel for consultation related to the class action and any waiver of rights they may be giving up by signing an arbitration agreement.