Class Action Lawsuits Sound Like a Good Thing, But They Aren't Always That Great For You

Joining a class action can be good if you don't have time to fight a case, but You can count on a significantly reduced settlement

Class Action Lawsuits Sound Like a Good Thing, But They Aren't Always That Great For You
Image: Pixabay
April 12, 2018

We're sure you've heard the phrase "we need a class action lawsuit" tossed around like it was the best thing since sliced bread. Well, that phrase does get tossed around a lot, but most people don't know anything about class action lawsuits, let alone the potential drawbacks they bring.

what is a class action lawsuit?

In a class action lawsuit, one or several people file a single lawsuit on behalf of a much larger group of people, which is called the class. This class of people have the same or very similar legal claim.

Strength In Numbers

There is typically strength in numbers, especially when going up against large corporations with high-dollar lawyers and a lot of money.  Many people who need to take legal action against a large company don't have the time, legal resources or the money to mount a successful case.  Class action lawsuits allow you to take legal action against a company with little to no effort on your part.  But while class action lawsuits can be good, they can also leave you with next to nothing.

Class Action Lawsuits Can Be Good... If Your Claim Is Small

If you have a problem with a company and your total loss is $40, will you spend upwards of $100 to file a small claims action in court?  Would you spend several hundred dollars to have an attorney do it for you?  Would you want to take the time off work to drive to court?  Would an attorney even take your case for such a small value? Many don't take cases where the potential settlement is less than $1,000. Class action lawsuits allow people who have a small claim to become part of the class without having to do much other than submit a form.  This allows you to have no risk and to continue your normal life without having to worry about the case.

Class Action Lawsuits Level The Playing Field

When a lot of people join together in a class action lawsuit, it levels the playing field with the large corporations.  More plaintiffs have a stronger position to negotiate, which means there is a better probability of being able to settle out of court, reducing costs. When individuals with small claims approach companies separately, there's a clear legal mismatch.

Class Action Lawsuits Generate Publicity and can punish companies who do wrong

When class action lawsuits are filed and litigated, it draws attention to a particular issue and to a company's bad behavior.  The negative attention, as well as any punitive damages, can lead to a bad reputation and a reduction in the company's income and market value. This can steer the company to do the right thing and to correct its bad behavior for the future.

Class Action Lawsuits Are More Efficient Than Individual Cases

Rather than the courts having to deal with hundreds or even thousands of individual cases across the country, each one having lawyers for both the company and the plaintiffs, there's only one case to litigate and follow.

Class Action Lawsuits give you better odds of a settlement

When many plaintiffs with the same issue combine together to form a class, each person has a better chance of recovering compensation when they may not have been able to do as individuals.  Costs of litigation are also divided among the original plaintiffs, or those who initially file the case, which lowers the cost of litigation.  If dealing with personal injury claims, the plaintiffs will typically pay only if the case is successful.

Class Action lawsuits Give You More Time to File a legal claim

In class action lawsuits, the statute of limitations, which is the amount of time you have to file a legal claim, is typically longer than traditional statutes of limitation. This means that there is more time for potential claimants to bring a claim as opposed to filing a legal action individually.

Class Action lawsuits Mean big paydays for class action lawyers

Many class action lawsuits aren't initiated by a harmed individual but rather by a lawyer who already has an idea about a case against a company but needs to find a person to represent the class. Some law firms specializing in class action lawsuits try to get huge windfall legal fees by researching target companies, creating a lawsuit against the company without knowing anything about it, then finding a person to represent the potential victims.

Class action lawsuits have been criticized as giving lawyers huge paydays while leaving little money for the people who were harmed, who typically get worthless coupons or vouchers for a future purchase from the company or a tiny settlement check. While class members do sometimes get checks for $50 to $100, many class action settlement checks are in the single digits or even so small that the postage on the envelope is more than the settlement.

Compensation is Typically Restricted to Specific Damages

If you join a class action, you can usually only recover specific economic damages, not hypothetical damages.  For example, if you have a bad product that hurt you, a court will likely award damages up to and including the cost of the item and possibly the cost of treatment. A court will not award damages for any potential damages that might occur (or might never occur) from the use of that product, such as future medical costs. In any case, you will likely only get a percentage of your actual damages.

If you have a case where you can potentially qualify for large damage awards, such as a personal injury case, or a case where you expect future damages, you would probably be better staying away from a class action lawsuit and filing individually.

You get no say over the course of events in class action lawsuits if you aren't an original claimant

When you participate in a class action lawsuit, you have absolutely no say in the decision-making process.  Only representative parties and lawyers have the ability to make decisions.  Your alternative if you want the ability to make decisions is to decline to participate in the class action and file your own claim.

Once you join a class action lawsuit, you can't make an individual claim

The moment you join a class action lawsuit, you can't file an individual claim against the company for the issue ever, which is the case whether or not the class action lawsuit is successful.  So if the class action lawsuit fails, you're forever out of luck. So if you think there's a chance the case could fail but you need compensation, an individual claim might be for you.

A class action lawsuit will not get you a quick resolution

Class action lawsuits are very complicated, so they naturally take a significant amount of time to finalize.  Whereas you might be able to have a resolution to an individual legal action in a very short amount of time, class action lawsuits can take several years to be fully resolved. Some class action lawsuits have taken more than 15 years to resolve from the initial filing.

Seek legal advice

This content is not intended as legal advice but is instead a general overview of the subject. As with any legal or potential legal matter, you should consult with a lawyer prior to making any decisions as to your actions.