Class Action: Definition, Example and Related Terms
What is a Class Action ?
In contract law, class actions often arise when a company breaches its contracts with many customers in a similar way. For example, if a bank wrongly charges thousands of customers the same illegal fee, rather than each customer suing individually, they can join together in a class action lawsuit.
For a lawsuit to qualify as a class action, it typically needs to meet several requirements: - The class must be so large that individual suits are impractical - There must be legal or factual questions common to the class - The claims of the representative parties must be typical of the class - The representative parties must fairly protect the interests of the class
Class actions are particularly important in contract law because they provide an efficient way to resolve disputes affecting many people, especially when individual damages might be too small to justify separate lawsuits. They also serve as a deterrent against widespread corporate misconduct.
Example(s)
Scenario Description A software company charges unauthorized subscription fees to thousands of customers. Instead of each customer filing an individual lawsuit for $50, they join together in a class action lawsuit. One or two customers act as representatives for all affected customers, making the legal process more efficient and cost-effective. An insurance company systematically denies valid claims based on a misinterpretation of its contract terms. All affected policyholders can join a class action lawsuit. The lead plaintiffs represent the interests of all class members, seeking to recover damages and force the insurance company to change its practices.