Ninth Circuit Limits Employers' Ability to Implement Arbitration Agreements After Litigation Begins

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The Ninth Circuit recently held that a district court may refuse to enforce arbitration agreements obtained from putative class members during pending litigation when the employer’s communications were misleading and designed to undermine the class action process. Avery v. TEKsystems, Inc., 165 F.4th 1219 (9th Cir. 2026) is a cautionary tale for employers who wait until after they have been sued to implement arbitration agreements and class action waivers, and a powerful reminder that proactive dispute resolution planning is far more effective than reactive measures taken under pressure of litigation.

The case arose from a putative class action filed by former recruiters at a professional staffing agency, alleging California wage and hour violations. The staffing agency had maintained a longstanding arbitration policy for its external consultants but had never extended that policy to internal employees. Nearly two years into the litigation—after class certification briefing had closed—the staffing agency rolled out a new mandatory arbitration agreement to internal employees, including the putative class members. The company’s communications about the newly-implemented arbitration agreement disparaged class actions, contained inconsistent deadlines, and gave class members only thirteen days to respond during the holiday season. The staffing agency then moved to compel arbitration pursuant to the newly-minted agreement just five days before the class notice period closed.

The district court denied the motion to compel, and the Ninth Circuit affirmed, holding that Rule 23(d) grants district courts authority to invalidate arbitration agreements, particularly ones that effectively transform an opt-out class process into an opt-in process. The Avery decision reinforces a principle that has emerged consistently in post-Concepcion case law: arbitration agreements obtained before litigation are generally enforceable, but agreements obtained during litigation face extraordinary scrutiny. In assessing the invalidating of arbitration agreements, courts examine the vulnerability of class members, evidence of coercion, whether the employer targeted class members specifically, and whether communications were misleading.

For employers seeking to avoid a similar outcome, consider implementing arbitration agreements with class action waivers before any dispute arises. Such agreements can be part of standard onboarding for all employees—not limited to certain classifications—so they cannot be characterized as targeted at a particular group or responsive to a particular litigation. Communications should be neutral, professional, and internally consistent. Employees should receive adequate time for review, and any opt-out provisions should be clearly explained. Agreements should be drafted to withstand challenge under generally applicable contract defenses such as unconscionability, and where possible supported by consideration beyond mere continued employment. If you do not have these types of agreements currently in place, consider discussing the pros and cons of implementing them with counsel.

Even where litigation has already been filed, employers retain meaningful options prior to class certification. Early case assessment regarding the scope of potential exposure, the strength of the named plaintiff’s claims, and the composition of the putative class allows for informed strategic decision-making. The key is to engage with these strategies early rather than waiting until late in the litigation shift decisively in favor of the plaintiffs.

Quarles’ Class Action Defense Team brings deep experience navigating complex class action litigation across industries, including wage and hour class actions in state and federal court. Our litigators work closely with clients to develop proactive strategies, from implementing enforceable arbitration programs and class action waivers to opposing class certification and managing pre-certification risk. If you have questions about the Avery decision, need assistance evaluating your current arbitration agreements, or want guidance on reducing class action exposure, please contact our team.

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