Judge May Disregard Arbitration Agreements in Class Action

Thursday, January 29, 2026

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Ninth Circuit:

Judge May Disregard Arbitration Agreements in Class Action

Opinion Says ‘Broad Authority’ Given to District Court Judges to Control Such Proceedings Includes Nullification of Certain Agreements

By Kimber Cooley, associate editor

A federal law that vests District Court judges with broad authority to exercise control over putative class actions includes the ability to decline to enforce an arbitration contract under which potential class members purportedly agreed to not participate in pending collective litigation, the Ninth U.S. Circuit Court of Appeals held yesterday.

The question arose after a group of California plaintiffs filed a putative class action against an employer alleging that the company violated state labor laws. After briefing on class certification had closed, the company rolled out a new arbitration agreement to its employees, purportedly binding them to waive any class claims and to commit any disputes to arbitration unless they signed a separate “opt-out” provision relating to the pending case.

Only 41 out of the 164 covered employees signed the accompanying “opt out,” and the defendant moved to enforce the agreement to exclude the remaining workers from the litigation.

District Court Judge Jacqueline Scott Corley of the Northern District of California denied the motion to compel arbitration, opining that the defendant had attempted to “turn[] [an] opt-out class proceeding into an opt-in proceeding” and citing Rule 23(d) of the Federal Rules of Civil Procedure (“FRCP”) as granting her the authority to decline to enforce the contract.

Rule 23(d)

Rule 23(d) provides that a District Court may issue orders to, among other things, “determine the course of proceedings,” “require—to protect class members and fairly conduct the action—giving appropriate notice to some or all class members” of important milestones in the litigation, or “deal with similar procedural matters.”

Yesterday’s opinion, authored by Circuit Judge Lucy H. Koh, points to U.S. Supreme Court decisions that have interpreted the powers contemplated by the rule as giving wide discretion to exercise control over a class action and declares:

“[W]e hold that a district court’s ‘broad authority’ under FRCP 23(d) ‘to exercise control over a class action and to enter appropriate orders governing the conduct of counsel and parties’ includes the authority to decline to enforce an arbitration agreement.”

Circuit Judge Johnnie B. Rawlinson and Senior District Court Judge Sidney A. Fitzwater of the Northern District of Texas, sitting by designation, joined in the decision.

The question arose after Bo Avery, Jill Unverferth, Kristy Camilleri, and Phoebe Rogers filed a putative class action complaint against professional staffing agency TEKsystems Inc. (“TEK”) in San Francisco Superior Court in January 2022, alleging that the defendant violated various California wage laws by, among other failures, misclassifying recruiters as exempt from overtime constraints. TEK, a Maryland company, removed the case to federal court in May.

Motion to Certify Class

On Oct. 6, 2023, the plaintiffs moved to certify a class of “[a]ll current and former Recruiters employed by Defendant in California from January 28, 2018 to the final date of judgment.”

In late December 2023, TEK sent two emails announcing a new mandatory arbitration agreement that included a waiver of collective action claims. The first message said that “[i]n our experience, litigation in court—particularly class collective and actions—are wasteful, inefficient means for resolving disputes” that “tend to enrich only attorneys” and “if you choose to continue working here after December 31,…you’ll be deemed to have accepted.”

A second email, sent only to members of the putative class, referenced the pending litigation and remarked:

“If you wish [to] remain a part of the putative class in Avery in federal court, you may opt out of the Mutual Arbitration Agreement for the limited purpose of remaining in [that] putative class by signing below and returning this form no later than January 9, 2024.”

The following February, Corley granted the plaintiffs’ motion for class certification, and notice was issued to members giving them until June 15 to opt out. On June 10, 2024, TEK filed a motion to compel arbitration. On Aug. 21, 2024, Corley denied the request under Rule 23(d).

Properly Denied

Koh wrote:

“This case concerns whether the district court properly denied TEK’s motion to compel arbitration based on FRCP 23(d). We hold that it did. First, we conclude that FRCP 23(d) authorizes district courts to refuse to enforce arbitration agreements. Second, we conclude that the district court correctly applied FRCP 23(d) in denying TEK’s motion to compel arbitration.”

Saying that, “[u]nder FRCP 23[(c)], class actions are an opt-out process in which class members are included within a certified class unless class members ‘request[] exclusion,’ ” she cited the 1981 U.S. Supreme Court decision in Gulf Oil Co v. Bernard and opined:

“District courts have broad authority under FRCP 23(d) to control the opt-out process of class actions. As the [high court] has explained, ‘[b]ecause of the potential for abuse, a district court has both the duty and the broad authority to exercise control over a class action and to enter appropriate orders governing the conduct of counsel and parties.’ ”

Subverted Federal Rule

Agreeing with Corley that “TEK subverted FRCP 23 by turning this typical Rule 23 opt-out class proceeding into an opt-in proceeding,” she reasoned that the defendant’s actions “fall within the scope of this broad authority” and that “[a] contrary holding would be at odds with the ‘duty…’ of district courts to control the class action process.”

TEK pointed out that the rule’s “plain text” does not discuss the authority to ignore valid arbitration agreements. Dismissing this concern, she wrote:

“FRCP 23(d)(1)(E) provides district courts with the authority to issue orders that ‘deal with similar procedural matters,’ which would include imposing conditions on defendants….Additionally, FRCP 83(b) states that when there is no controlling law, ‘[a] judge may regulate practice in any manner consistent with federal law, [federal rules], and the district’s local rules.’…Read in tandem, the U.S. Supreme Court has held that FRCP 23(d) gives a district court ‘the broad authority to exercise control over a class action and to enter appropriate orders….’ ”

Other Federal Law

Addressing the defendant’s reliance on the Federal Arbitration Act (“FAA”), which favors enforcing agreements like the one at issue, she commented:

“[T]here does appear to be an inherent conflict between the FAA and FRCP 23 in this case. FRCP 23[(c)] establishes an opt-out process for class actions….The district court has broad authority under FRCP 23(d) to control the opt-out process….TEK’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 Agreement.”

Saying that “TEK repeatedly disparaged the efficacy of class actions” and that the “arbitration roll out was internally inconsistent and…confusing,” she concluded that “[i]nvalidating the Agreement is necessary to be consistent with FRCP 23 as it restores the opt-out process as the default.”

Koh acknowledged that the agreement included a provision delegating the authority to decide questions of arbitrability to the arbitrator but said that case law has established that questions regarding the validity of the contract are to be decided by the federal court. The jurist declared:

“[W]e affirm the district court’s order denying TEK’s motion to compel arbitration under FRCP 23(d).”

The case is Avery v. TEKsystems Inc., 24-5810.