How Much Is Your Class Action Case Worth?

In a class action lawsuit, a lawsuit is brought on behalf of a group of people who experienced similar financial or physical injuries as a result of the same defendant. As an example, the largest class action settlement ever involved four tobacco companies paying over $200 billion dollars in medical costs for smoking-related illnesses.

How much can you get in a class action lawsuit? Are class action settlements taxable? Learn the answers to these questions and more below in our guide to class action settlements.

How Much Is a Class Action Lawsuit Worth?

The damages lawsuit members can recover in a class action lawsuit vary from case to case. In some instances, the class loses and members receive nothing. Ultimately, each case’s outcome and payout will be impacted by several factors, such as the number of plaintiffs, the level of injury to each plaintiff and the nature of the accused’s wrongdoing.

Here is an example. Company X unlawfully terminates the employment contracts of 50 employees, leaving some unemployed for months. The employees sue the employer, claiming damages for unlawful termination of employment and breach of contract.

In this case, the court may ascertain the damages by considering each employee’s salary and the amount of lost wages. The court may also award other damages for breach of contract. Because each employee’s lost income may vary, knowing the exact value of damages would be challenging.

How Much Can You Get in Class Action Settlements?

Typically, class action lawsuits are handled by settlement agreements rather than by going to trial. Just as in lawsuits that go to trial, class action lawsuit settlement amounts can award varying amounts of damages to plaintiffs.

Parties may choose to settle a case in one of two ways. Let us use the employer-employee settlement example from the previous section to illustrate this.

First, the employment contract or any other agreement between the employer and employee may contain a clause that compels the parties to attempt mediation before proceeding to court. Second, the parties may not have any prior agreement but may decide later on whether to attempt an out-of-court settlement. Whatever the case might be, settlement negotiations should be voluntary.

During negotiations, the defendant or employer may make an offer to the parties, which the employees may counter or accept. The settlement amount will depend on each employee’s loss and other recoverable damages. Sometimes, employers settle with those they believe have a valid claim, leaving the rest to proceed to trial if they wish.

Whether your class action lawsuit involves your employer or a different defendant, it is best to prepare adequately if you are involved in a class action settlement. Before you sign any agreements, read the terms carefully and seek legal advice. You can only appeal consent judgments in limited instances.

Are Class Action Settlements Taxable?

Generally, monies recovered in class action settlements or lawsuits are non-taxable, but the circumstances can determine otherwise.

For example, if you recover damages for lost wages, those wages could be taxable. The reason is that wages are already taxable, and a delay in payment may not exempt them from tax. In other words, lost income recovered through court action is not different than income you would receive from a typical paycheck. That is also true for front and back pay.

Damages recovered from claims like physical injury are usually tax-free. Similarly, damages for emotional distress may be exempted from tax if they directly relate to a physical injury, but are otherwise generally taxable. Interest received on a settlement award may be taxable.

Determining whether or not monies recovered from settlements or lawsuits are taxable can be tricky. It is advisable to consult a tax professional for clarification.

Does a Plaintiff Pay for the Class Action Lawsuit?

Plaintiffs in a class action lawsuit may pay attorney fees and other related expenses depending on the agreement with the lawyer. Some lawyers or law firms charge on a contingency basis, meaning the plaintiffs only pay once the contingency is satisfied or the class wins the lawsuit.

For example, the lawyer and clients usually agree that the lawyer will charge a certain percentage of the total amount recovered from the case. Plaintiffs who join the class action lawsuit later may also be subject to the same conditions.  Typically, attorney fees must be approved by the court overseeing the class action settlement.

Does the Lead Plaintiff Get More Money in a Class Action Lawsuit?

The named or lead plaintiff represents the parties in the suit and typically takes charge of all correspondence. The court may give the lead plaintiff an incentive award for the work done on behalf of the class. Otherwise, they get their share of the proceeds.

How Is Money Divided in a Class Action Lawsuit?

The court divides the money in class action lawsuits in most cases. For example, the judgment may allocate money for different damages and costs. In some instances, the judge will include attorney fees in the judgment. This sometimes caters to the legal fees for the whole class.

As mentioned earlier, many law firms operate on a contingency fee basis. If the plaintiffs win, the attorney may claim the agreed-upon percentage with other related expenses.  The remaining settlement fund is then divided amongst the parties according to their share.

What Types of Damages Can You Get?

The court may grant different types of damages in a class action lawsuit, including:

• Nominal damages: A nominal sum is a small amount the court awards to demonstrate that the defendant has committed some legal wrong. It is usually granted when the plaintiff suffers no actual financial loss or when the legal wrong is not substantial.
• Compensatory damages: The court can award compensatory damages to restore the injured party to the position they would have been in if it were not for the legal wrong. It is usually equivalent to the loss the party suffered. Compared to nominal damages, compensatory damages are more substantial.
• Liquidated damages: Liquidated damages are estimates or amounts that one can easily ascertain, especially from a contract. It could be an exact figure or a formula used to calculate damages. The primary purpose is to cater to losses that are hard to quantify.
• Punitive damages: The court awards punitive damages to punish the defendant. For example, when your employer does a wrongful act willfully or maliciously, the court can impose punitive damages.

Contact Weisberg Cummings for a Free Consultation

Weisberg Cummings is an employment law firm based in Pennsylvania, committed to helping employees through their legal challenges. We are experienced in representing clients in class action lawsuits and settlements and are ready to partner with you. If you have any questions, request a free consultation now.