Avery v. TEKsystems, Inc.

Background

Recruiters for TEKsystems, Inc. alleged that TEKsystems improperly classified Recruiters as exempt from California overtime, wage, and hour laws, causing them to be underpaid. The court certified a class covering current and former Recruiters employed by TEKsystems during the specified period, along with a subclass of certain former employees.

TEKsystems had required its consultants to sign mutual arbitration agreements as a condition of employment. In late 2023, it adopted a similar arbitration policy for internal employees, including Recruiters. The policy stated that employees would be deemed to accept the agreement by remaining employed after January 1, 2024, even without signing it. The agreement required covered claims to be resolved in confidential individual arbitration rather than in court or before a jury, and barred class, collective, and representative proceedings.

TEKsystems emailed the agreement to current California internal employees on December 19, 2023, after briefing on the plaintiffs’ class-certification motion had closed but before the court heard argument on that motion. The email described court litigation and class actions as wasteful and as benefiting attorneys rather than employees. A second communication informed Recruiters who were putative class members that they could opt out of arbitration for the limited purpose of remaining in the class action, but required them to sign and return the form by January 9, 2024. The communication also instructed recipients not to share the email.

At the time of the motion, 123 certified class members had not opted out of the arbitration agreement. More than two years after removing the case to federal court, TEKsystems moved to compel arbitration of claims by certain certified class members.

Rule 23(d) and the Communications

Federal Rule of Civil Procedure 23(d) gives a court authority to manage a class action and regulate communications that could interfere with class members’ rights. The court found that TEKsystems’ communications threatened the fairness of the litigation because they were misleading and omitted important information.

The court focused on several features of the communications. TEKsystems disparaged class actions and class-action lawyers, did not tell putative class members that they could consult the plaintiffs’ lawyers for free, and did not provide those lawyers’ contact information directly. The communications also did not explain that class-certification briefing was complete or that the court was scheduled to decide the issue soon. In addition, TEKsystems first presented the arbitration agreement as a mandatory condition of employment and only later explained that putative class members could opt out for the limited purpose of participating in the case.

The court concluded that TEKsystems had effectively turned the class action from an automatic-participation process into an opt-in process after class-certification briefing was complete, while discouraging employees from joining the case. It therefore stated that it would not enforce the arbitration agreement against the certified class members and denied TEKsystems’ motion on that basis.

Waiver

The court also considered the plaintiffs’ argument that TEKsystems waived its right to compel arbitration. Waiver means intentionally giving up a known right. Under the applicable Ninth Circuit standard, a party waives the right to compel arbitration when it knows of the right and acts inconsistently with it, considering the totality of the circumstances.

The court found that TEKsystems waived the right to compel arbitration of the certified class members’ claims. TEKsystems did not raise arbitration during the class-certification proceedings, even though its own evidence indicated that approval for mandatory arbitration of internal employees had been obtained before the class-certification motion was filed. TEKsystems waited until after the court certified the class, approved class notice, set a briefing schedule for the plaintiffs’ partial summary-judgment motion, and received that motion before seeking arbitration. The court described this as inconsistent wait-and-see conduct.

The court rejected TEKsystems’ argument that waiver was impossible because the agreements did not become effective until January 1, 2024. It reasoned that TEKsystems could have raised arbitration before the class-certification hearing or before class notice was ordered. The court also rejected a distinction based on whether an arbitration agreement already existed, explaining that TEKsystems had litigated the case rather than timely taking steps to impose arbitration.

Disposition

Judge Jacquelyn Corley denied TEKsystems’ motion to compel arbitration. The order resolves docket entry 105. The opinion addressed whether the arbitration agreement could be enforced in this class action; it did not decide the merits of the Recruiters’ wage-and-hour claims.