Types of Class Action Lawsuit Settlements

Types of Class Action Lawsuit Settlements

A class-action lawsuit is a civil lawsuit that is brought on behalf of business entities or a group of people who suffered common injuries due to the improper conduct of the defendants. These lawsuits prevent corporations from harming big groups of people whether through defective products or unfair business practices. Though class actions can be filed for civil rights violations against the government, usually they are against large corporations. At least one entity or individual acts as a representative of that group. Though the issues of a class action vary, the dispute issues are a common concern of all class members. The class actions might be brought in either state or federal court. Since it becomes extremely expensive and challenging for individuals in the United States to sue businesses or companies for wrongdoing courtesy of its legal system, class action offers respite to individuals who wish to recover damages and losses. For example, a lawsuit can be filed on behalf of all members who used an app, bought a product, or visited a particular store.

9 Types of Class Action Lawsuit Settlements

1. False Advertising Class Action Lawsuit Settlements

This type of claim arises from making deliberate attempts of untruthfulness in business services or products. You can take the example of the classic class action where international chocolate manufacturer Godiva settled a class action lawsuit wherein the chocolatier was alleged to have falsely advertised its chocolates to be “Made in Belgium.” However, plaintiffs claimed that its chocolates weren’t made in Belgium.

2. Anti-trust Class Action Lawsuit Settlements

These class actions result from lawsuit settlements brought to challenge improper conduct like monopolization and price fixing which levy detrimental impacts on business competition. A popular example of this type of class action settlement was the price-fixing of chicken in the United States wherein businesses tried to gain favor in the market by pushing our fair competition in the marketplace.

3. Workplace discrimination Class Action Lawsuit Settlements

Often class actions are brought when people suffer from discrimination based on color, race, sex, origin, disability, religion, age, or other medical conduct and seek damages for the same. Here you can take the example of class actions brought about by people who suffered from lost potential wages or emotional damages due to workplace discrimination. Common types of employment class action lawsuits include disputes over compliance issues with the hour and wage laws, discriminatory hiring or pay, sexual harassment, hostile workplaces, and other matters which might be against federal or state law.

4. Privacy Violation Class Action Lawsuit Settlements

These class action lawsuits result from settlements for privacy law violations. Laws like the Biometric Information Protection Act (BIPA) aim to protect both ordinary people and consumers from having their data used in ways that might violate their basic rights and freedoms. Examples of such data are personal information like passport number, driver’s license, social security number, and also facial biometrics, fingerprints, and even your DNA. Class action cases have been filed against Facebook and Snapchat in the United States claiming that the companies violated privacy laws.

5. Fraudulent investment reports Class Action Lawsuit Settlements

This type of class action is meant for victims who have been scammed because of their good faith investments made in companies and thus suffered massive financial loss due to false news released or monetary reporting of the publicly traded company. At times, financial fraud might extend beyond monetary terms causing the victims to suffer from anxiety, insomnia, deep depression, and nervousness. This is why the class action payouts often recover for emotional damages inflicted on the members.

6. Environment Class Action Lawsuit Settlements

Environmental issues like maintaining clean water, and preventing pollution affect large classes of potential plaintiffs rather than sole individuals. You can take the example of property owners who succeeded in bringing class action lawsuits alleging that contamination of properties decreased their property values. As a result, defendants and other businesses changed the ways of waste disposal and levied greater efforts to avoid environmental pollution which might cause future litigation.

7. Finance Class Action Lawsuit Settlements

Issues concerning security breaches and predatory lending are often subjected to class actions. Here the victims of financial securities fraud, predatory lending, or misconduct bring about a lawsuit requiring alteration in practices for protecting the interests of investors and future customers.

8. Product defects Class Action Lawsuit Settlements

These have been and continue to be a major type of class action litigation. You can take the example of the lawsuit filed against Toyota in 2010 alleging that defective vehicles were unintentionally accelerated.

9. Dangerous drugs Class Action Lawsuit Settlements

Defective pharmaceutical devices and dangerous drugs don’t create injuries in just a single person. Rather, they impact a large number of people. This is why numerous class action lawsuits have been brought in the past by class members regarding defective contraceptives, defective drugs, and defective surgical materials. These defective drug class actions urge pharmaceutical companies to follow stringent quality guidelines and develop better testing procedures for the upcoming days.


Is it worth it to join a class action settlement?

Yes, joining class action lawsuits is worth it if you believe to have suffered financial losses or injuries due to the errors or omissions of the defendant. As a class member, you will just have to fill out the claim form and provide potential documentation to recover compensation worth thousands of dollars.

Is a class action settlement income?

Yes, it is considered income for tax purposes. The only portion of a lawsuit that isn’t considered earnings is the compensation received for physical illness or injury. Even punitive damages and emotional trauma gets reported as earnings.

How do I claim a settlement?

Consumers who claim to have suffered an injury due to fraud or defective products become eligible to receive compensation from the class action settlement. Once the settlement is reached, notices shall be sent by the settlement administrator to affected class members. Alternatively, notices about the settlement might be published in magazines, newspapers, and online.

Is there a downside to participating in a class action lawsuit?

The biggest downside of joining a class action lawsuit is that if the class action case fails, you lose the right to file an individual lawsuit. Class members cannot reject a settlement offer if the class representatives agree to the same.

Do I pay taxes on a settlement?

Court awards or settlements for sickness and injury are non-taxable provided the claimant doesn’t deduct related medical expenses while submitting their tax returns. Other than this, all the proceeds from class action lawsuits are taxed in a manner similar to any other lawsuit settlement.

How do I avoid taxes on a settlement?

Often people make the mistake of assuming that once they receive the settlement and pay the attorney fees, the remaining is theirs to enjoy. However, some settlements are subject to taxes and many people don’t realize it until it is time to pay tax on their previous year’s income. You can eliminate or reduce the probability of paying taxes on a lawsuit settlement by undertaking the following steps:

  1. Before signing the settlement agreement determine if the defendant will issue a Form 1099. You should try and negotiate so that the 1099 income is lower than your actual settlement amount if the defendants plan to issue one.
  2. During settlement negotiations discuss the allocation of the greater share of the settlement to non-taxable award categories. For example, you can increase the award related to illness and physical injuries while decreasing the award related to emotional distress.
  3. At times, you will be able to treat a portion of your settlement as capital gains. You can classify a settlement for damage to your business or home as capital gains if you sued over damages inflicted on the property. Similarly, the settlement might be qualified as a recovery of tax basis which isn’t an income.
  4. You can push your income into the higher tax bracket by receiving a lump-sum taxable settlement. This will help reduce the amount of taxable income if you spread your settlement payments over several years.

Should I cash a class-action settlement check?

Usually, the class-action settlement checks are legitimate and you can encash them without worrying.

How are settlements calculated?

Once the presiding judge reviews the settlement offer in a class-action lawsuit and certifies the compensation to be fair and adequate, the settlement amount is divided. The first share is given to the lead plaintiff depending on their participation in the class action lawsuit. The lawyers work on a contingency basis and are paid a percentage for their legal fees and other related costs. The court usually restricts the lawyers’ payment to a reasonable amount to ensure fairness. Ultimately, the settlement money is divided among the class members.

How long does it take to get a settlement offer?

There is no definitive answer to this question as it depends fully on the nature of the case. The time taken for pay-out depends to a great extent on the type of case, size of the settlement, and the defendant’s ability to pay. It is also determined to a great extent by the type of the entity, thus if you win a class action lawsuit against municipalities or certain government entities, then it might take decades to receive the payment as these entities are allowed to prioritize when and who they pay. Generally speaking, the lawyers representing the plaintiffs can achieve a settlement between nine months and a year.


  • The lawyers don’t charge any legal fees until they win the case and collect the settlement. Thus, they spread the cost of the lawsuit among the plaintiffs and deduct the total from the settlement amount.
  • There is a lead plaintiff in every class action lawsuit serving as the face and voice of the group for representing their cumulative interests. This helps in reducing the stress of class members who get to play a passive role by simply awaiting the judgment. They don’t have to search for an attorney to take their case and get to be a part of the lawsuit despite how little they were harmed. Unless you are a named plaintiff, class members don’t have to participate in interrogations, depositions, and other legal procedures.
  • Class action lawsuits decrease the number of cases that clog the court system. It narrows things down to one lawsuit, one court, and one single decision for all. Both the insurers and defendants are motivated to settle courtesy of the number of plaintiffs.
  • The severity of injuries has a significant role to play in personal injury lawsuits. Despite being unfair, it prevents cases where lawyers reject cases because of minor injuries. Strength in numbers holds the negligent party accountable to receive compensation in class actions.


  • Class members give up their right to sue the defendant individually.
  • They don’t possess any input regarding how the case is handled.
  • They don’t have direct access to the attorneys representing the class.
  • Class members are bound by the final settlement amount or the jury’s decision.
  • You have to give up the right to appeal if the attorney loses.

Often the individual damages of a victim aren’t enough to justify the cost of litigation. However, hundreds or thousands of individuals come together in a class action to get pooled together. Here each member constitutes part of the class and is represented by the same attorney which is usually a well-established law firm. Class action lawsuits are the most effective means in the American justice system of holding the negligent parties accountable. However, since it involves multiple people, it is a time taking affair receiving an unfair amount of negative scrutiny. Despite this, a class action is the only way of getting compensation for an issue that would have been impossible to get separately otherwise.

Categorized as Settlement