What Is a Class Action Waiver?

Find Your Degree!

A class action waiver is essentially a type of document that prevents someone from using a class action lawsuit. This is common among employment contracts, although it can be used for other types of contracts as well. When someone signs this type of waiver, they are essentially removing their right to file a class action lawsuit.

How a Class Action Lawsuit Works

A class action lawsuit is when a group of people join together to sue about the same issue. This is often the most efficient way of addressing a problem that many people have. Class action lawsuits may be about faulty medical gadgets, sexual harassment at work or other topics. The plaintiffs work together to effectively sue the defendants as a team. It is easier than filing a bunch of individual lawsuits because all of the plaintiffs share the costs and the work.

Another reason that this type of lawsuit is chosen is because of how the damages are awarded. Individually, each person may only be able to receive a small portion of the proceeds. When they join together, it suddenly becomes cost effective. All of the plaintiffs share the cost of the case, and the cumulative award can be quite large. If the individual damages are small, it may only make sense to sue if there is a large class of people targeting the wrongdoing.

For the company, these types of lawsuits can be extremely expensive. If they lose, then they may have to pay a large sum to the other side. This is far more expensive than cases when just one person is suing the company.

What Does a Class Action Waiver Do?

Being able to take part in a class action lawsuit is important. Sometimes, it is the only way that the individual can get fair compensation for any wrongdoing. When the individual is only asking for a small sum of money, a lawyer may not represent them because it is too costly. Class action waivers are used by companies to prevent other people from suing as a group.

This kind of waiver is often included in arbitration agreements. The company may require that people settle the dispute through arbitration. While this practice is legal in some areas, states like California have outlawed this practice as unfair.

The class action waiver essentially removes the individual’s right to sue as a group. Some states have laws about this type of waiver because it is inherently unfair. An employee may be told that they have to sign the waiver in order to do their job. Unfortunately, this means that they have limited their options if wrongdoing happens at the job. They may be unable to get just compensation for damages because of the cost of hiring a lawyer or the presence of an arbitration agreement.

The Legality of Class Action Waivers in the Workplace

Soon, this topic will appear before the United States Supreme Court. Previously, the National Labor Relations Board (NLRB) ruled that employers could not use class action waivers in an arbitration agreement if the employees were covered by the National Labor Relations Act. The NLRB believed that this limited employees rights. Lower federal courts and the Fifth Circuit refused to enforce this ruling.

For the moment, the case is undecided. A class action waiver may still be used by employees not covered by the National Labor Relations Act, and it may also be used for other purposes.