Class arbitration is an alternative to a class action lawsuit in which a group of plaintiffs settles its differences with a defendant in the form of arbitration. Class arbitration is less common than class action lawsuits, but does occur in certain situations. It enables plaintiffs to recover for damages they incur, without the need for a case to go to court.
Arbitration is a form of alternative dispute resolution in which an arbitrator, or panel of arbitrators, hears a dispute. Arbitration can be binding or voluntary. In binding arbitration, parties must submit their dispute to arbitration and are bound by the decision the arbitrator makes. In voluntary arbitration, the parties involved in a dispute meet with each other and an arbitrator to determine if they can settle their disputes out of court.
Class arbitration occurs when a group of plaintiffs joins together to file a complaint against an entity. This is common in product liability cases and in situations where a drug doesn't work properly or injures people. It's also common when a defective product causes people to suffer some type of loss.
At times, the individual plaintiffs affected by a defective product may not find it financially worthwhile to bring a lawsuit against a company or entity that produced a defective product. If, for example, each person only suffered a small amount of losses, it would not be worthwhile for that person to go to the time and expense of filing a lawsuit. In many countries — including the United States, Canada, Spain, and the United Kingdom — these parties can join together in a class for the purposes of bringing a cause of action.
The named plaintiff who brings the cause of action is the person who brings the case to the attention of an attorney. All of the other plaintiffs are part of the cause of action, but don't have to actually meet with a lawyer or become involved in the negotiations, arbitration, or litigation with the company. These other plaintiffs get a piece of whatever settlement is agreed upon, but do not have to participate in the process or pay any money; the attorneys involved in the litigation are paid a percentage of the settlement.
These class actions most often go to court, where a judge or jury determines that the class of people is appropriate to join together, that the cause of action has merit, and that the company did something wrong. The judge or jury normally decides what, if anything, the company has to pay. Alternatively, once the litigation is filed, many companies attempt to settle out of court.
Class arbitration is an alternative way of settling these disputes. Instead of the case going to court, the class action goes to class arbitration where an arbitrator either decides liability and the appropriate settlement (in the case of binding arbitration) or where an arbitrator assists the plaintiff and defendant in coming to an agreement together about the appropriate settlement.