What Is a Class Action Lawsuit and How Do Class Action Settlements Work?

Tylene Welch  | 

What Is a Class Action Lawsuit?

A class action lawsuit is a case where the plaintiff, a group of people represented by one individual, sues a defendant for some type of injury each class member suffered. For example, if a group of people got food poisoning from the same restaurant, they could sue the restaurant in a class action case. Class action suits are more commonly brought against corporations or business entities whose industry or products impact a wider group of consumers.

The group is typically not present in court. A court case becomes a class action lawsuit when the injured party consists of a large group of people (typically 40 or more). Rather than each individual bringing their case to court, a class action can be resolved in a single proceeding.

Potential plaintiffs, or those that are not the representative plaintiff in court, are contacted with the opportunity to “opt out” of the lawsuit. Alternatively, they can get instructions for how to receive their share of the damages awarded, if the defendant settles the case or loses at trial.

Class action lawsuits can collect a large number of claims, resulting in a more efficient legal process, and a more affordable lawsuit— making it easier and more likely that an individual will seek retribution. Likewise, class action ensures that anyone causing widespread harm, even on a minimal basis, will be held accountable and forced to compensate those individuals affected.

Filing a Class Action Lawsuit

The representative plaintiff has the responsibility of hiring an attorney and filing the lawsuit. Class action lawsuits are complex, and the plaintiff should be somewhat versed in the process and able to hire an experienced attorney.

Filing the class action is easy: simply check the appropriate box on a complaint filing sheet provided by the civil court. The plaintiff must also file the complaint with the allegations of the lawsuit. Then the plaintiff will serve the complaint on the defendant.

Getting the Class Certified

Before the case can proceed, after the complaint has been filed and the defendant has been served, the class must be certified. Certification is done to prove the plaintiffs have similar complaints against the defendant. This is done either by the representative plaintiff or the court. Certification requirements can vary from state to state, but most courts follow the same general requirements:

  • The representative plaintiff must prove they suffered similar injuries as the class.
  • The class must clearly determine who is and isn’t a member.
  • In order to be a certified class, the number of members must be large enough (usually needs more than 21 people, but 40 or more is best).
  • All members of the class must share a common set of facts or legal interest (injuries or reasoning for the case).
  • The representative plaintiff’s case must satisfy that of the entire group’s claims despite their absence.
  • The representative plaintiff must also prove that a class action is also the most effective way of resolving the case.

As you can see, filing a class action lawsuit is fairly simple but getting the class certified will take more work. But it’s still possible. When the case is certified, it then moves on to pre-trial procedures.

How Do Class Action Settlements Work?

In a class action lawsuit, the defendant can choose to take a settlement or go to trial. They may choose the settlement to avoid a long and expensive court proceeding, but settlements can be extremely large sums of money in order to appease the injuries of every class member. A court also has to approve the settlement amount to ensure it is fair, reasonable, and in the best interest of the class.

Once the case is settled, a notice of the settlement will either be sent out to you or posted publicly online or in the newspaper. The settlement notice will provide information for obtaining your class action rebate. Usually, you can submit a claim to receive your rebate or settlement award. Legal fees are also paid out of the settlement before the remainder is split amongst class members.

What Are Class Action Rebates?

The class action rebate is the money you are entitled to after a settlement is reached and the attorneys are paid. In other words, a rebate is the money awarded to members of the class if the suit is settled in their favor.

In some class action settlements, people are unaware of their right to the settlement award and they never claim their share. There is no guarantee that everyone who could collect their portion will claim their rebate either because it was impossible for the lawyer to obtain their contact information or because they missed the announcement online or in the news. In most cases, these unclaimed funds go right back to the company that was sued, which doesn’t encourage accountability.

You don’t want these funds to go back to the company that was sued. Be sure to send in a claim for your class action rebate before it’s too late.

How to Join a Class Action Lawsuit

In most instances, you won’t need to join the class action. Those affected by the lawsuit claims are automatically included in the class unless they choose to opt-out. If you are eligible to participate in a class action lawsuit, you will receive a class action notice when the case is certified. Or take a look at current class action settlements and find out if a rebate is waiting for you.


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Tylene is a freelancer in Boise, Idaho. She's a self-taught personal finance hacker with zero debt. She eats avocado toast for breakfast.

This post was updated August 30, 2018. It was originally published September 4, 2018.