So You’ve Been Contacted About a Class-Action Lawsuit. Here’s Everything You Need to Know

Reviewed by Carina Jenkins, J.D.

So you've received a letter (or, more likely, an email) about a class-action lawsuit — now what?

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Being part of a class-action lawsuit is often the best way to access compensation after suffering an injury or financial loss, but it's not the right option for everyone.

What Is a Class-Action Lawsuit?

Class-action lawsuits allow one or more plaintiffs to bring a case on behalf of several people or entities. In other words, it allows the courts to deal with cases where multiple parties have suffered similar losses because of another's actions, where the number of litigants would otherwise make doing so unmanageable. Therefore, a single law firm often represents a group against a company or body. If successful, the court will order an award to be shared fairly among the group.

There are many examples of areas where class-action lawsuits may apply. Often, these cases involve injuries or losses caused by dangerous or faulty products and medications. Other examples include:

• Financial losses to investors due to a company acting fraudulently
• Employer-related issues, such as unpaid hours
• Other losses resulting from fraudulent business practices

Depending on the laws involved, plaintiffs can bring a class-action lawsuit in the state or federal courts. The federal courts deal with cases involving federal law.

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Why Have I Been Contacted About a Class-Action Lawsuit?

You may receive a letter known as a class-action notice if a class-action lawsuit may affect you. Most often, you'll receive a class-action notice after settlement explaining how you can claim part of the settlement as compensation.

So, how did the party sending the class-action notice get your details? One of the duties of any attorney bringing a class-action lawsuit is to trace and inform any parties with an interest in the case. Typically, attorneys get your contact information by reviewing documentation provided by the defendant. For example, they may request customer lists from the company the claim is against.

However, it's sometimes impossible for attorneys to locate and contact everyone who may have a right to part of the settlement. In this situation, they may post the class-action notice publicly to encourage potential claimants to come forward.

What Does It Mean to Be Part of the ‘Class’?

When a plaintiff files a class-action lawsuit, they propose a class. The class is the group of people or entities that suffered similar loss or harm because of something the defendant did (or wrongfully neglected to do.) The judge then assesses whether to certify the class. To qualify, the class must be large enough to make individual litigation impracticable.

If you're part of the class, it means you were affected by the defendant's actions in a similar way to the rest of the group. The judge will assign a class definition that explains who is eligible. As mentioned above, you'll usually receive a class-action notice if the definition applies to you.

Do I Need to Opt In?

Many class-action lawsuits automatically opt-in class members, which means that the outcome of the case applies to them. However, some cases require class members to actively opt in.

You can usually opt out of a class-action lawsuit, although a judge may prevent opting out in exceptional circumstances. If you opt in, you'll receive a portion of any settlement or award when the case concludes.

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What Happens If I Opt Out of a Class-Action Lawsuit?

If you decide to opt out of a class-action lawsuit, the settlement or judgment won't apply to you. This means you won't be entitled to a portion of any payout. While most people choose to opt in, opting out allows you to bring your own case against the defendant. Opting out can make sense if you have unique circumstances. However, it does have risks, so you should speak to an attorney if you're considering this option.

What Is a Settlement?

Sometimes, the parties involved in a class-action lawsuit will agree to settle, instead of going through a potentially lengthy and expensive trial. A settlement isn't an acceptance of guilt from the defending company, and the plaintiff must agree to the terms. Companies may agree to a settlement for various reasons, such as avoiding negative publicity from fighting the case.

A judge must approve the proposed settlement to ensure it's fair to all parties. Usually, a settlement requires the company to pay a sum to be shared between the class members.

How Much Money Will I Get?

How much money you'll get from a class-action lawsuit depends on several factors:

• Amount of the settlement or judgment
• Number of people in the class
• Your personal damages, especially in tiered settlements
• Type of case

One of the largest settlements for a case against a pharmaceutical company was around $3 billion. Tobacco companies have also had to pay billions in class-action suits. However, not every class-action results in such large numbers. For example, in 2021, the average securities class-action lawsuit settlement was $8.3 million, and many class-action suits result in much smaller settlements.

While these figures may sound mind-bogglingly high, that doesn't mean that you should always expect a substantial individual payout from a class-action lawsuit. The lawyers who work on class-action lawsuits usually take a portion of the settlement or judgment as a fee.

The size of the class can also affect how much you receive. Your payout could be substantial for a serious case involving fewer people, while a less serious case with thousands of class members could result in a much smaller payout. Ultimately the amount people get from class-action suits can range from just a few dollars to hundreds of thousands.

Sometimes people involved in a class-action lawsuit receive different payout amounts based on the severity of individual injuries. Class members and payments may be categorized into tiers based on damages.

Can I Sue for More Damages After a Class-Action Lawsuit?

You can't bring an individual lawsuit against a company if you opt into a class-action lawsuit. Therefore, you'll have no further recourse if the settlement or judgment is lower than you hoped. Meanwhile, opting out reserves your right to bring an individual case against the company.

What Else Should I Know About Class-Action Lawsuits?

It's important to weigh your options carefully before deciding whether to become part of a class-action lawsuit. Often, these lawsuits are advantageous because they're significantly more affordable and straightforward than bringing an individual case. They can also help affected parties get access to compensation faster because the court doesn't have to deal with multiple individual suits.

However, opting in isn't the right option in every situation. You may be better off bringing an individual case if your injuries or losses are substantially worse than the rest of the class, as the payout from a class-action lawsuit may not cover your costs. You may also prefer to opt out if you're unsure of the extent of your losses. Consulting an attorney can help you decide which option is in your best interests.