Ninth Circuit calls out disparaging language and holiday timing in TEKsystems communications
Appeals court blocks mid-lawsuit arbitration rollout, ruling employer's misleading holiday emails to workers violated federal class action protections.
The Ninth Circuit Court of Appeals delivered a sharp message to employers on January 28, ruling that TEKsystems crossed the line when it tried to pull workers out of a class action lawsuit by rolling out mandatory arbitration agreements 22 months into active litigation. For HR directors navigating the increasingly complex terrain of employment disputes, the case sets clear boundaries on when and how companies can implement arbitration policies once employees have already sued.
Four former recruiters sued TEKsystems in January 2022, claiming the professional staffing agency had misclassified them as exempt from overtime and denied proper breaks under California law. The case moved from state to federal court and proceeded normally through discovery for more than a year. Then in December 2023, just five days after the workers finished arguing for class certification, TEKsystems rolled out a new mandatory arbitration policy. The timing would prove fatal to the company's strategy.
On December 19, TEKsystems sent two carefully crafted emails. The first went to all internal staff, describing arbitration agreements as common, efficient, and cost-effective. But it went further, calling class action lawsuits wasteful and inefficient, claiming they tend to enrich only attorneys rather than employees with legitimate claims. Hours later, a second email targeted the 164 workers who were potential class members. This message informed them about the lawsuit for the first time and presented them with a choice: sign a form by January 9 to opt out of the arbitration agreement and stay in the class action, or do nothing and be automatically bound to arbitration.
The structure flipped normal class action procedures on their head. Typically, workers who do nothing remain in the lawsuit. TEKsystems made inaction equal automatic exclusion from the class. The emails arrived during the December holiday season, with the initial deadline falling on New Year's Eve. Workers had to make a major legal decision while many were on vacation or distracted by family obligations.
The messages told workers they were free to consult an attorney but simultaneously instructed them not to share the emails with others. They implied workers would need to hire their own lawyers, never mentioning they could talk to the plaintiffs' attorneys for free. Contact information for those attorneys was accessible only by clicking through to the complaint, rather than being provided directly. Throughout the communications, TEKsystems repeatedly warned that class action lawyers charge exorbitant fees. This language left workers wondering whether seeking legal advice would cost them money they did not have.
Adding to the confusion, the emails contained contradictory information. One stated the opt-out deadline was January 9, 2023, while another said January 9, 2024. Workers were never told that class certification briefing had finished and a decision was coming soon. Of the 164 workers who received the targeted email, only 41 opted out to stay in the lawsuit. The remaining 123 did nothing and found themselves bound to arbitration.
When TEKsystems asked the court to enforce those arbitration agreements, both the district court and the appeals court refused. Circuit Judge Lucy Koh, writing for a three-judge panel, explained that federal courts have broad authority to protect the fairness of class action procedures. That authority includes refusing to enforce arbitration agreements obtained through misleading communications, even though federal law generally favors arbitration.
The court identified multiple problems with the rollout. The repeated disparagement of class actions appeared designed to discourage workers from participating in the lawsuit. The internal contradictions between the two emails created confusion. The omission of key information prevented workers from making informed decisions. Most fundamentally, the court found that TEKsystems had subverted the basic structure of class actions by turning an opt-out proceeding into an opt-in proceeding through the arbitration agreement.
TEKsystems argued the court had no power to rule on the arbitration agreements because a delegation clause in the contract assigned such disputes to an arbitrator. The appeals court rejected that argument, explaining that when workers challenge the validity of the entire agreement, including the delegation clause, judges must decide the challenge before sending anyone to arbitration.
The decision aligns the Ninth Circuit with three other federal appeals courts that have reached similar conclusions. Together, these rulings signal a national consensus that employers cannot use arbitration agreements to manipulate class action litigation. This does not mean arbitration agreements are prohibited. TEKsystems had longstanding arbitration policies for its external consultants that nobody challenged. The problem arose specifically from implementing a new policy for internal employees during active litigation using communications designed to reduce participation in that litigation.
For HR professionals, the takeaways are straightforward. Implementing arbitration policies before litigation starts avoids accusations of strategic manipulation. Rolling them out mid-lawsuit, especially after class certification proceedings begin, invites intense judicial scrutiny. Communications with employees must be scrupulously fair, avoiding language that disparages class actions or suggests workers will face financial hardship if they participate. Provide complete information about deadlines and options, make it easy to contact all relevant lawyers, and clarify that plaintiffs' attorneys typically work on contingency. Major policy changes requiring employee action should not land during holidays when workers are least able to respond thoughtfully. Most critically, courts will not tolerate arbitration agreements that transform opt-out classes into opt-in classes by making inaction equal exclusion.
TEKsystems now faces continued class action proceedings with all 123 workers it tried to move into arbitration remaining potential class members. The company spent significant resources on a strategy that generated an appeals court decision documenting its questionable tactics. As employment litigation grows more complex and class actions become more common, this case demonstrates that arbitration programs can effectively manage legal risk only when implemented with genuine attention to fairness, transparency, and timing.
