How Class Action Settlements Work: Claim, Opt Out or Object

A class action settlement is a deal between the class representatives and the defendant that binds every class member who does not opt out. It takes effect only after a judge holds a hearing and finds it fair, reasonable and adequate. Class members then get notice and decide whether to claim, opt out or object. The same court-approval rule covers a settlement class action, where the class is proposed for certification for purposes of settlement.

Federal Rule of Civil Procedure 23 governs class actions in federal court. State-court class action rules vary by state.

How a Class Action Settlement Works, Step by Step

A class action settlement moves through five stages, and it binds no one until a judge approves it after a hearing. The stages run in this order:

1. The settlement agreement. The class representatives and the defendant negotiate the terms. Under Rule 23(e)(3), the parties must file a statement identifying any agreement made in connection with the proposal.
2. Notice to class members. In a Rule 23(b)(3) class, the court must direct the best notice that is practicable under the circumstances. That includes individual notice to every member who can be identified through reasonable effort. Notice may arrive by U.S. mail, electronically or by another appropriate method.
3. The response window. The notice sets the deadline and method for requesting exclusion. It usually also explains how to submit a claim. Class members may object to the proposal.
4. The fairness hearing. The judge holds a hearing on the proposal. Rule 23(e)(2) allows approval only on a finding that the settlement is "fair, reasonable, and adequate."
5. Final approval. If the judge approves, the settlement binds every class member who did not opt out. Valid claims are then paid under the method the settlement sets.

Court approval is mandatory. Under Rule 23(e), a class action's claims may be settled, voluntarily dismissed or compromised only with the court's approval. That rule applies to an already certified class and to a class proposed for certification for settlement purposes.

A judge may also refuse approval unless class members who passed on an earlier opt-out chance get a new chance to request exclusion. That power appears in Rule 23(e)(4). For background on how these cases begin, read about how a class action starts or browse the class actions overview.

What the Notice Must Tell You

A Rule 23(b)(3) settlement notice must explain the case and each class member's options in plain, easily understood language. Rule 23(b)(3) classes are the kind used for most money claims. Rule 23(c)(2)(B) lists what the notice has to state.

Read the class definition first. The class definition decides whether the rest of the notice applies to you. A settlement notice usually also tells class members how to submit a claim, often with a claim form and a deadline. It also names the settlement website and the settlement administrator.

For the wider set of protections consumers have, read about your consumer rights.

Your Three Choices: Claim, Opt Out or Object

A class member who gets a settlement notice can file a claim, opt out or object, and doing nothing has its own result. Each choice changes what you can receive. Only opting out changes whether the judgment binds you.

Opting out is the only choice that removes you from the class judgment. Under Rule 23(c)(3), a member who does not opt out is bound by the judgment. That holds whether the member filed a claim, objected or did nothing. If you opt out and want to bring your own case, read our guide on how to file a lawsuit.

An objection has two content rules under Rule 23(e)(5)(A). It must say whether it applies only to you, to a specific subset of the class, or to the entire class. It must also state the grounds with specificity. Under Rule 23(e)(5)(B), no payment may be made for dropping an objection or an appeal unless the court approves it after a hearing.

A class member who does nothing generally receives no payment under a claims-made settlement. That member stays bound unless the member opted out. The terms in the notice for the specific case govern the deadlines.

How the Court Decides Whether a Settlement Is Fair

A judge approves a class action settlement only after a hearing and only on finding that it is fair, reasonable and adequate. Rule 23(e)(2) tells the judge what to weigh:

• Representation: whether the class representatives and class counsel adequately represented the class.
• Negotiation: whether the proposal was negotiated at arm's length.
• Adequate relief: whether the relief is adequate given the costs, risks and delay of trial and appeal.
• Distribution: how well the proposed method of paying class members works, including how claims are processed.
• Fees: the terms of any proposed attorney's fee award, including when it would be paid.
• Equal treatment: whether the proposal treats class members equitably relative to each other.

The judge also has the statement the parties must file identifying any agreement made in connection with the proposal.

Class requirements sit underneath the fairness review. Under Rule 23(a), a class may sue only if it meets four tests:

• Numerosity: the class is so large that joining every member is impracticable.
• Commonality: members share questions of law or fact.
• Typicality: the representatives' claims are typical of the class.
• Adequacy: the representatives will fairly and adequately protect the class's interests.

A Rule 23(b)(3) class must also show that common questions predominate over individual ones. It must show that a class action is superior to other ways of resolving the dispute.

For how a Supreme Court standing ruling affects class members, see our TransUnion class action lawsuit guide.

How Claims Are Paid

Each settlement sets its own payment method, and the notice for that settlement says which one applies. Some settlements pay in one of these ways:

• Set amount per claim: every class member who files a valid claim receives the same set amount.
• Share of a fund: the fund is divided among valid claims in proportion, so each payment depends on how many claims are filed.
• Tiered by documentation: people who submit documentation receive a larger amount, and people who do not receive a smaller one.

Under a claims-made structure, a class member generally must file a valid claim to be paid. The claim form and its deadline usually appear in the notice or on the settlement website. Our guide on how to claim a settlement covers the form itself. If you lack receipts, read about filing a class action claim with no proof of purchase.

Payment depends on the specific settlement's terms and on court approval. For general timing factors, read how long a settlement takes. Tax treatment is a separate question, covered in whether settlements are taxable.

Attorney Fees and Who Decides Them

The court decides class counsel's fee, and any class member can object to the fee request. Under Rule 23(h), the court may award reasonable attorney's fees and nontaxable costs in a certified class action. Those fees and costs must be authorized by law or by the parties' agreement. The request comes by motion. Notice of that motion must go to class members in a reasonable manner.

The court also appoints class counsel under Rule 23(g). Appointed class counsel must fairly and adequately represent the class. Fee terms are part of the fairness review too, including when the fee would be paid.

Class counsel represents the class as a whole. A class member may still enter an appearance through a separate attorney, as the notice must explain. If you opt out and bring your own case, read how a contingency fee agreement works.

Verifying a Settlement Is Real

To verify a class action settlement, match the notice against the court record and the settlement website the notice names. The terms in that case's notice govern your deadlines and options. Work through these steps:

1. Find the case name, the court and the settlement website listed in the notice.
2. Look up the case on the court's docket. For federal cases, start at the United States Courts website.
3. Go to the settlement website by entering the address exactly as the notice prints it.
4. Compare the class definition, deadlines and administrator name on the website with the notice.

If you think you missed a payment from an earlier case, read our guide on unclaimed settlement money. To track open cases, compare the best class action lawsuit websites.

If you are weighing whether to opt out, you can get matched with a plaintiff-side attorney, free and with no obligation to hire.

Frequently Asked Questions

How does a class action settlement work?

A class action settlement is a deal between the class representatives and the defendant that binds every class member who does not opt out. It takes effect only after a judge holds a hearing and finds it fair, reasonable and adequate under Rule 23(e)(2). Class members get notice and then decide whether to claim, opt out or object.

Do I have to do anything to get money from a class action settlement?

In a claims-made settlement, yes. A class member who does nothing generally receives no payment under that structure. The notice for the specific case usually explains how to submit a claim, often with a claim form and a deadline.

What happens if I do nothing after getting a class action settlement notice?

You stay in the class and are bound by the judgment if the court approves the settlement. Under a claims-made structure, you generally receive no payment. The notice for the specific case sets the deadlines that apply.

Should I opt out of a class action settlement?

Opting out removes you from the class, so the class judgment does not bind you. The request must follow the deadline and method in the notice. Whether opting out fits your situation depends on your facts, so discuss it with a lawyer through our attorney matching page.

How do I object to a class action settlement?

Any class member may object to a proposed settlement under Rule 23(e)(5). The objection must say whether it applies only to you, to a specific subset of the class, or to the entire class. It must also state the grounds with specificity.

Who approves a class action settlement?

The judge overseeing the case approves it. Rule 23(e) allows a class action to be settled only with the court's approval, and for a settlement that binds class members, only after a hearing under Rule 23(e)(2). The judge must find the deal fair, reasonable and adequate.

How long does it take to get paid from a class action settlement?

Payment depends on the specific settlement's terms and on the court's approval. Read the notice for your case and our guide on how long a settlement takes.