When large groups suffer the same harm, for example through unlawful data processing, unfair consumer practices, corporate fraud or systemic employment breaches, individuals rarely have the time or resources to seek justice on their own. Unsurprisingly, therefore, collective litigation emerged as a practical response to the fundamental problem: how do individuals enforce rights that have caused significant collective harm?
As individuals seek redress collectively, corporations look for new ways to deal with such claims: arbitration schemes, regulatory redress programmes and coordinated settlements are becoming more prominent. Supporters argue that these mechanisms deliver compensation more quickly and efficiently than traditional litigation. Maybe so, but we question whether redress achieved outside the courtroom also limits transparency, accountability and consumer participation.
From a corporate perspective, such alternatives are attractive. Group actions can be expensive, public and lengthy. Disclosure obligations are extensive, adverse judgments create significant precedent risk and publicity can generate significant reputational harm. However, the only appropriate starting point when assessing the merit of private mass claim mechanisms is to look through the lens of justice and access to justice, and to ask whether such alternatives are fair for all parties.
Arbitration and the accountability gap
Arbitration is often presented as the consumer-friendly alternative to traditional litigation. However, arbitration was designed to resolve disputes between a limited number of parties, not to provide collective redress for thousands of consumers, and in the UK we have no dedicated mass arbitration framework comparable to the systems that emerged in the US following passage of the 1925 Federal Arbitration Act (FAA).
Undoubtedly, arbitration is well suited to sophisticated commercial parties of broadly equal bargaining strength, but perhaps less so in consumer and employment settings. Privacy may benefit defendants seeking to avoid prolonged publicity, but the corollary is to reduce public scrutiny of their misconduct.
In the US, the application of the FAA to consumer and employment disputes has been among the most debated legal developments in recent years. Critics have argued that mandatory pre-dispute arbitration clauses in adhesion contracts (standard-form agreements offered on a take-it-or-leave-it basis) effectively deprive consumers and employees of meaningful access to the courts to pursue class-wide relief.
The US Supreme Court first addressed these concerns in AT&T Mobility LLC v Concepcion, holding that the FAA pre-empted a California state law that had deemed class-arbitration waivers in consumer contracts unconscionable. The court reasoned that the California rule frustrated the FAA’s objectives and that the FAA’s policy favouring arbitration required enforcement of arbitration agreements according to their terms, including terms that waived class proceedings.
In Epic Systems Corp. v Lewis, the Supreme Court extended its reasoning from Concepcion to the employment context, holding that arbitration agreements requiring individualised arbitration and waiving class or collective proceedings were enforceable under the FAA, notwithstanding the provisions of the National Labor Relations Act. Epic Systems confirmed that employers could require employees to arbitrate disputes on an individual basis as a condition of their employment.
Individual arbitration raises practical concerns. Consumers and employees rarely negotiate arbitration clauses on an equal footing, and while English law contains safeguards against unfair contract terms, arbitration removes the opportunity for unlawful conduct to be publicly tested (and, where appropriate, publicly condemned). Much of our legal practice is about righting wrongs and improving corporate behaviour – it is easy to see how such considerations would wither in an arbitration process.
Regulatory redress
Regulatory compensation schemes occupy a more complex position. They can provide consumers with outcomes that litigation struggles to deliver. The Financial Conduct Authority’s decision to pursue an industry-wide motor finance redress scheme illustrates the point. Rather than requiring individual consumers to navigate lengthy legal proceedings, a regulatory process can identify affected customers and deliver compensation at scale. For many claimants, particularly those with modest losses, this may represent a genuine improvement on litigation.
Yet regulatory schemes also have limitations: they are not courts, and their priorities extend beyond compensating victims to include, for example, market stability, and when redress schemes provide the route to compensation, important questions about liability, legal rights and corporate conduct can remain unresolved.
Rise of coordinated settlements
The use of coordinated settlements to resolve large-scale disputes before trial can benefit all parties. What claimant would wish to endure years of litigation if fair compensation could be secured earlier? Especially if settlement comes with an admission of fault and/or an apology. However, while large-scale settlements can produce impressive headline figures, early settlement may come without the opportunity for judicial scrutiny of the alleged misconduct.
For claimant representatives, this creates a delicate balance. Early resolution can benefit class members, but so too can the public determination of contested legal issues that shape future corporate behaviour.
UK framework: fit for purpose?
England and Wales remains unusual among major jurisdictions in lacking a comprehensive collective redress regime. Group litigation orders provide case management tools rather than true collective actions. Representative actions remain constrained by the ‘same interest’ requirement. Opt-out proceedings are largely confined to competition law claims.
The result is a fragmented landscape in which access to justice often depends on procedural creativity rather than clear legislative design.
This matters, because the absence of a coherent collective redress framework can be the driver to search for private alternatives. When court processes are cumbersome, expensive or inaccessible, businesses and regulators will naturally seek different routes to resolution.
If mass harms become a structural feature of the digital economy (and we think they may, particularly in data protection, consumer and employment contexts), then the focus must be to expand effective collective redress rather than encouraging disputes to migrate into private forums.
Future of mass claims
Mechanisms such as arbitration, regulatory redress schemes and coordinated settlements have roles to play, if they can deliver fair compensation more quickly and at reduced cost. However, speed and efficiency are by no means the only measures of justice, and nor should they ever be.
Collective proceedings create transparency and enable public scrutiny of corporate conduct, while allowing courts to develop the law and provide authoritative guidance on disputed rights. Crucially, they help ensure that individuals with small claims can obtain meaningful access to justice.
The question for policymakers is therefore not whether alternatives to collective litigation should exist. It is whether the UK is comfortable allowing an increasing proportion of mass harms to be resolved through private or quasi-private processes rather than through public adjudication.
As more large groups of individuals suffer harm, how they seek and obtain justice will be one of the defining access-to-justice questions of the coming decade.
Jamie Hanley is a partner and James Fee is of counsel at Labaton Keller Sucharow LLP’s London and New York offices, respectively
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