Companies Have Been Limiting Class Action Lawsuits

• Author: Monica Jackson
• Posted: 2024-11-18

As a consumer, you may find yourself in the position of wanting to file a class action lawsuit because you did not get the benefit of the bargain when you paid for something. However, you find out at some point that the possible defendant has stuffed an arbitration clause somewhere in the purchase agreement that seeks to limit your class action rights. You may be wondering whether businesses can escape class action liability by inserting an arbitration clause into their agreements. In most cases, the answer to that question is yes.

There are some limits to a company's right to insert a clause that limits consumers' class action rights. For instance, a court will refuse to enforce an arbitration clause if there is some sort of overreach. This generally means that the business has tried to do something that is unconscionable and enforcing this clause would be grossly unfair to the potential plaintiffs.

A Contract Clause Can Take Away Class Action Rights

However, this is now becoming even more of an issue. Because they are worried about legal liability in the wake of COVID-19, businesses are now inserting COVID-19 clauses into their contract preventing consumers from suing for COVID-19-related reasons. In general, more companies are learning how to defeat class action lawsuits before they even start by inserting clauses into their contract forbidding them. If you are wondering whether a business can get away with this, in most cases, the answer is yes. Not only are businesses being more aggressive in putting these clauses into the contract, and courts have been giving them legal cover.

The Supreme Court has been making it more difficult for consumers to bring class action claims. Companies have more leeway to try to limit these claims. Given the cost of class action lawsuits, they have every incentive in the world to do so. The Supreme Court has given virtually free reign to companies to insert arbitration clauses into sales contracts in order to avoid lawsuits. Companies want the case in arbitration because it makes it much more difficult for plaintiffs to file any type of legal action. Class action lawsuits mean that the company will face lawsuits that they otherwise would not have with plaintiffs proceeding separately.

As a consumer, this often places the onus on you to read the terms of the sales agreement before you buy anything. Most consumers do not read the contract before they buy something and only find out after the fact that they are being forced into arbitration, a forum that is decidedly friendly to the business' interests.

In cases where the business has inserted a clause attempting to defuse the risk of class action claims, the plaintiffs' attorneys will need to argue why the clause should not be enforced by the court. In most instances, this is an uphill battle for the attorneys. However, even though class actions have become more difficult for plaintiffs, it does not mean that the class action lawsuit is dying. In recent years, federal courts have more narrowly interpreted Supreme Court precedent to keep plaintiffs' class action rights alive. Moreover, the Supreme Court itself has been less aggressive about taking cases that could further cut back on the ability to bring a class action suit.

Companies Cannot Change the Contract after the Purchase

There has been one notable area of limitation recently where the plaintiffs' rights have been respected, Some businesses that will attempt to insert a class action waiver clause after you have made the purchase. In other words, they will try to unilaterally amend the terms of the deal after the sale. In that case, courts will draw a line that will strike down these clauses. Arbitration clauses must be a part of the bargain at the time that it is made in order to be enforceable. For example, the grocer HelloFresh sought to amend a contract to add a class action waiver clause, and a district court judge in Massachusetts refused to enforce that clause when the defendant in a lawsuit submitted a motion to compel arbitration.

For current purposes, this means that a business cannot retroactively amend a sales contract that was agreed to before the COVID-19 pandemic. Once a purchase has been made or a deal agreed to, it cannot be changed after the fact by the business. In other words, the original contract governs, and a business cannot change it afterward without a new deal with consumers.