Court Bars Employer From Distributing Arbitration Agreement To Settlement Class Members During Pendency Of Class Settlement

Duane Morris Takeaways: On September 4, 2026, in Calderon, et al. v. Public Partnerships, LLC, No. 25-CV-02320 (E.D.N.Y. Sept. 4, 2026), U.S. Magistrate Judge Lara K. Eshkenazi of the U.S. District Court for the Eastern District of New York barred a defendant from distributing a proposed dispute resolution agreement (“DRA”) containing a class action waiver to settlement class members during the period between preliminary and final approval of a class settlement. The decision is a reminder that employers seeking to implement arbitration agreements during the pendency of class litigation must carefully consider timing, and that courts will exercise their authority under Rule 23(d) to protect class members from communications that could cause confusion during critical phases of a settlement.

Case Background

Plaintiffs, personal assistants (“PAs”) who received payment through Public Partnerships, LLC (“PPL”) as part of the New York State Medicaid Consumer Directed Personal Assistance Program (“CDPAP”), brought a class action alleging that PPL violated state and federal law by failing to pay them accurately and on time. After extensive mediation, the parties reached a class settlement and submitted a motion for preliminary approval of class certification, appointment of class counsel, and class settlement on June 23, 2026.

At the preliminary approval hearing on July 1, 2026, PPL raised the topic of a proposed DRA that it intended to distribute to PAs, including settlement class members. PPL explained that it wanted to institute the DRA, including a class action waiver, to create a mechanism to address issues raised by PAs without becoming subject to lawsuits related to its role as the statewide fiscal intermediary. Plaintiffs opposed the implementation of the DRA to the extent it would impact settlement class members, arguing it could confuse class members and cause them to mistakenly opt out of the settlement agreement. Plaintiffs also noted that a prior attempt by PPL to implement a DRA had led to significant class confusion, resulting in PPL withdrawing the DRA.

After the parties were unable to resolve the dispute, PPL filed a motion for approval of its proposed DRA and Plaintiffs filed a cross-motion for a Rule 23(d) order barring distribution of the DRA to settlement class members before final approval of the settlement.

The Court’s Decision

The Court denied PPL’s motion and granted Plaintiffs’ motion for a Rule 23(d) order.

The Court applied the framework set forth in Chen-Oster v. Goldman, Sachs & Co., 449 F. Supp. 3d 216, 255 (S.D.N.Y. 2020), considering factors including class members’ relative vulnerability, evidence of actual or contextual risk of coercion, whether the provision was imposed unilaterally, and evidence of misleading conduct, language, or omissions. The Court emphasized that it need not find actual or willful misconduct “so long as the effect is to interfere with class members’ rights.” (Op. at 4).

While the Court acknowledged that the DRA itself was not coercive or misleading, and credited the steps PPL had taken to reduce confusion, the Court concluded that the risk of confusion for settlement class members was high for several reasons.

First, the timing of the DRA rollout would directly overlap with notifications to settlement class members of the settlement, which could confuse class members about the relationship between the DRA and the settlement.

Second, the DRA contained an opt-out process that, despite best efforts at clarity, could still cause settlement class members to inadvertently opt out of the settlement — a risk the Court found was particularly high due to the number of settlement class members for whom English is not their first language. Third, the timing of the DRA rollout could cause settlement class members to believe that accepting the arbitration agreement was a condition of accepting the settlement.

The Court distinguished the case PPL primarily relied on – Carusillo v. FanSided, Inc., No. 20 Civ. 4766, 2021 WL 4311167 (S.D.N.Y. Sept. 21, 2021) – where the court had permitted distribution of an arbitration agreement during a collective action opt-in period. The Court explained that Carusillo involved a relatively early stage of the litigation, whereas Calderon was in its final stages, with a final approval hearing scheduled for November 10, 2026. The Court noted that PPL offered no explanation for the urgency of its request to communicate with settlement class members about the DRA rather than waiting just a few months until the risk of confusion would no longer exist.

The Court further rejected PPL’s argument that Plaintiffs’ concerns about class confusion ended on September 19, 2026 — the deadline for opt-outs and objections — finding that the risk of confusion would persist even after the opt-out deadline because class members would continue to learn about their settlement rights and could potentially submit late opt-outs.

Implications For Employers

The Calderon decision underscores the importance of timing when implementing arbitration agreements during pending class litigation. While courts have permitted employers to introduce arbitration agreements during the pendency of class or collective actions, the Calderon ruling makes clear that courts will scrutinize the timing of such communications, particularly during the sensitive period between preliminary and final approval of a class settlement. The Court’s decision did not prevent PPL from distributing the DRA to non-class members, and it did not find the DRA itself to be coercive or misleading. Employers should take note, however, that even a well-drafted arbitration agreement with meaningful opt-out protections can be blocked if the timing of its distribution could cause confusion or interfere with class members’ rights during a settlement process. Employers considering rolling out arbitration agreements or dispute resolution programs during the pendency of class litigation should work closely with counsel to carefully evaluate the litigation timeline and consider whether it is prudent to delay the rollout until after settlement proceedings conclude.