Can Your Employer Add Arbitration After You Sue? Understanding the TEKsystems Decision

For many employees, workplace problems do not show up all at once. They tend to build gradually through situations such as missed overtime pay or pressure to accept workplace policies with little explanation. One issue that often catches workers off guard is arbitration agreements, especially when they are introduced after an employment dispute has already started.

Arbitration is a private process in which disputes are decided by a neutral arbitrator instead of a judge or jury. If a worker signs an arbitration agreement, they are often required to bring workplace claims through that private process instead of filing a lawsuit in court.

A recent Ninth Circuit decision in Avery, et al. v. TEKsystems, Inc., No. 24-5810, examines when arbitration agreements introduced during ongoing litigation may be rejected by the courts. The decision focuses on whether employers can require arbitration after a lawsuit has already been filed and how those agreements are communicated to workers.

TEKsystems is a leading staffing company that places IT professionals in temporary and permanent roles and provides broader technology services to clients. A group of recruiters who worked for TEKsystems filed a wage and hour class action lawsuit in the U.S. District Court for the Northern District of California. They were allegedly misclassified as independent contractors and, therefore, denied overtime pay and legally required meal and rest breaks.

Under the ABC test, a California worker is presumed to be an employee unless the employer can prove all three parts: that the worker is free from its control and direction in performing the work, performs work outside the company’s usual business, and is customarily engaged in an independently established trade or occupation of the same nature as the work performed.

While classification issues were central to the lawsuit, the court did not address them first. Instead, the case focused on whether the recruiters were required to participate in arbitration. TEKsystems had long required some categories of workers to sign arbitration agreements, but recruiters were not initially included. That changed after the lawsuit was already underway.

In 2023, the company rolled out a new arbitration agreement that applied to recruiters. Workers were told they had to either opt out or accept the agreement. Those who did not respond were treated as having agreed to arbitration, even though the lawsuit was already pending.

An email also notified workers about the lawsuit and explained that they could opt out of arbitration if they wanted to remain part of the case. A significant number of employees did not opt out, which the company later argued meant they had waived their right to proceed in court.

Both the Northern District of California and the Ninth Circuit found problems with how TEKsystems introduced and communicated the arbitration agreement. Arbitration agreements are generally enforceable only if entered into knowingly and voluntarily, just like other contracts.

The courts emphasized the surrounding context. Because the agreement was introduced after litigation had already begun and the communications were viewed as confusing, there were concerns that employees may not have fully understood the rights they were giving up. For those reasons, the Ninth Circuit held that the arbitration agreement could not be enforced against the workers challenging it. The case can therefore proceed in court rather than being moved into private arbitration.

The decision underscores a few key takeaways for employees facing arbitration in workplace disputes. First, arbitration agreements are not automatically enforceable just because an employer presents them. Courts will closely examine when and how the agreement was introduced. Second, in classification disputes, courts focus on how work is actually performed instead of just how an employer labels the position.

Workers who believe they have been misclassified or denied overtime should understand that these cases often involve multiple legal issues that overlap. Arbitration clauses, classification rules, and wage and hour protections can all affect how a claim proceeds.

If you are wondering whether an arbitration agreement applies to your situation, a San Francisco employment lawyer can help clarify your options. McCormack Law Firm represents workers in employment disputes and is available to answer your questions. Contact us today at 415.925.5161 to schedule a free initial consultation.

Disclaimer: This article is for information purposes only. McCormack Law Firm is not involved in this case.