What Is a Class Action? Suing Together When One Claim Is Too Small to Bring

A class action begins like any lawsuit, with a claimant, but the claimant asks the court to certify a class: a defined group of people, all the buyers of a product in a period, all the shareholders who bought before a disclosure, all the workers paid below the minimum, whose claims share the same questions of law and fact. If the court agrees that the class is numerous, the questions common, the representative's claim typical and the representation adequate, the case proceeds on behalf of everyone in the class whether they know of it or not, and the judgment or settlement binds them all. Members of an American class must be notified and may opt out to sue on their own; in most other countries a class member must opt in to be included, which makes the classes smaller and the device weaker.

The cases fall into recognisable kinds:

• •Consumer claims: overcharges, defective products, misleading advertising, where each loss is small and the total is large
• •Securities fraud: shareholders who bought at a price inflated by a company's false statements, the largest category by money in the United States
• •Mass torts: injuries from a drug, a device or a disaster shared by thousands, such as the Deepwater Horizon spill and the opioid litigation, though these are often handled instead by consolidating individual suits
• •Employment: wage theft, discrimination and misclassification across a workforce
• •Civil rights: the desegregation cases of the 1950s and 1960s were class actions on behalf of all the children in a school district
• •Antitrust: buyers overcharged by a cartel, which is how the vitamin and lysine cartels' victims were compensated

The class action does two things nothing else does. It compensates people whose individual claims would never be brought, and it deters, since a company that can be made to pay all of its victims rather than the few who sue faces the true cost of what it did. In the United States, where public regulators are comparatively weak and private litigation is expected to do the enforcing, the class action is the main instrument by which corporate wrongs are punished at all, and the largest settlements, 206 billion dollars from the tobacco companies in 1998, 14.7 billion from Volkswagen in 2016, 26 billion from the opioid distributors in 2021, were reached because the alternative was a class trial.

The critics say that the device serves lawyers. The class's members are passive and usually receive small sums or coupons, while the lawyers who run the case take a third of a settlement that they have every incentive to reach quickly, so that a defendant and the plaintiffs' lawyers can agree a deal that suits both and the class cannot effectively object; the courts must approve settlements for that reason, and the review is often light. Certification itself is so consequential, since a certified class of millions can bankrupt a defendant on a claim that might lose at trial, that companies settle cases they would win, and the settlements price in that pressure. American corporations have responded by putting arbitration clauses with class-action waivers into every consumer and employment contract, which the Supreme Court upheld in 2011 and 2018, so that most Americans have signed away the right without knowing it, and the argument about whether that is freedom of contract or the end of the remedy is a live one.

The rest of the common-law world adopted the device slowly and hedged it. Canada and Australia have opt-out class actions and active litigation; England allowed group litigation orders in 2000, which require opting in, and an opt-out class for competition claims only in 2015, under which the first cases, over rail fares and Mastercard fees, took years to certify; the European Union required every member state to provide a collective redress mechanism by 2023, most of them opt-in and run by consumer bodies rather than lawyers. The differences reflect a judgement about the American experience: the device is powerful, and the countries that watched it decided they wanted the power with fewer of the lawyers.

A class action is a lawsuit brought by one or a few claimants on behalf of everyone harmed in the same way, certified by a court when the claims share common questions and binding the whole class, so that losses too small to sue over individually can be recovered and wrongdoers made to pay their full cost. It produced the tobacco, diesel and opioid settlements, it is criticised for enriching lawyers and pressuring defendants to settle, American arbitration clauses now block most of it, and other countries have adopted narrower opt-in versions.