TEKSystems Recruiters Free to Seek Unpaid Wages in Court

Avery v. TEKSystems, Inc. involves two important questions:

• first, were the plaintiffs “employees” under California law and consequently entitled to the protections afforded by California labor law; and
• second, were they required to arbitrate their wage and hour claims.

Facts and labor law allegations

TEK is a professional staffing agency that places external employees (“consultants”), on temporary assignments with business clients to provide IT services. TEK had an existing policy that required these consultants to sign an agreement to arbitrate disputes as a condition of employment. This policy did not cover TEK’s interior employees (“recruiters”).

On January 28, 2022, Bo Avery, Jill Unverferth, Kristy Camilleri, and Phoebe Rogers, who worked as recruiters, filed a putative class action wage and hour lawsuit against their employer. Avery alleges that TEK violated the California Labor Code by paying the recruiters as independent contractors rather than employees. This misclassification, they argue, deprived them of overtime pay as well as legally required rest and meal breaks.

California Labor Code protects employees

In 2020, the California legislature adopted a rule, commonly referred to as the “ABC test” to determine if workers are employees or independent contractors. The goal of the law is to curb the kind of misclassification about which the Avery plaintiffs complain.

Under the ABC test, a worker is presumed to be an employee and not an independent contractor, unless the hiring entity satisfies all three of the following conditions:

• The worker is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact;
• The worker performs work that is outside the usual course of the hiring entity’s business; and
• The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.

If the recruiters should have been paid as employees, they were entitled under Section 510 of the California Labor Code to overtime pay.  In addition, the workers were entitled to a 30-minute, unpaid, duty-free meal break for shifts over 5 hours and a paid 10-minute rest for every 4 hours worked. If the employer failed to provide required breaks, it was required to pay each employee one additional hour of pay for each workday for each meal break missed, and another hour for every rest break that was missed.

Neither the Northern District nor the Ninth Circuit got to the classification question or to the wage issues that follow, however, because of a basic jurisdictional issue.

When do workers have to arbitrate their claims?

In general, federal law favors the resolution of disputes through arbitration. The Federal Arbitration Act requires federal and state courts to enforce private arbitration agreements, treating them just like other contracts. Employees try to avoid arbitrating disputes because oddities of the process favors employers.

A basic rule of contract law is that, to be enforceable, both parties must have entered into the agreement willingly, voluntarily, and knowingly. TEK’s conduct in rolling out the agreement that allegedly binds the recruiters to arbitrate their wage claims raises serious questions about that threshold issue.

 
TEK churns the waters

In September 2023, 22 months after Avery was well into pre-trial proceedings, TEK approved a new, mandatory arbitration agreement that automatically covered the recruiters in addition to the consultants (the “Arbitration Agreement”). The recruiters were required to “opt out” of the new Arbitration Agreement or quit their jobs. If employees failed to respond, they were deemed to have agreed to arbitrate. On October 6, 2023, the recruiters filed their motion for class certification, which TEK opposed. The class certification briefing closed on December 14, 2023.

On December 19, just before the Christmas holidays and five days after the class certification process closed, TEK sent an email to all recruiters, announcing its new arbitration policy. The email contained the following language:

“In our experience, litigation in court – particularly class and collective actions – are [sic]  wasteful, inefficient means for resolving disputes, and tend to enrich only attorneys rather than the individuals who may have legitimate claims.”

The email noted that workers who agreed to arbitrate (whether affirmatively or passively by failing to respond) waived all their rights to class action lawsuits.

A second email also sent to recruiters on December 19 noted that:

“A lawsuit has been filed which, if certified, would include you as a class member. You may opt out of the arbitration agreement for the limited purpose of keeping your ability to participate in that lawsuit by signing and returning the attached agreement by January 9, 2023 [sic].”

Of the 164 employees who received the second email, 41 employees opted out to remain eligible class members; 123 class members did not opt out of the Agreement, thus abandoning their rights to continue under Avery. The remaining Avery plaintiffs objected. The District Court held for the plaintiffs and the Ninth Circuit affirmed, concluding that TEK’s communications were confusing and deceptive.

What now?

The Avery plaintiffs may now, it seems, get to the first question, the one is that is most pressing for them. Jurisdictional issues out of the way – were they misclassified as independent contractors and were they entitled to be paid for overtime and break periods?