After a class action is successfully settled, courts in both the United States and Canada may award compensation to representative plaintiffs on top of any amounts that the representative plaintiffs may receive as class members under the settlement. That supplemental compensation is not enjoyed by other class members.
Courts typically grant awards of supplemental compensation—termed “incentive payments” in the United States and “honoraria” in Canada—when a representative plaintiff is found to have gone above and beyond the ordinary duties of a class representative in contributing to the prosecution and resolution of a class action.
Payments of that sort are often justified on pragmatic grounds. They help close a perceived incentives gap in the class actions system by compensating named plaintiffs, who are tasked with moving cases forward on behalf of an absent class, for what may be a significant investment of time and perhaps money. But the practice of awarding these payments to representative plaintiffs has recently been the subject of controversy—on both sides of the border—with concerns raised about its ethical and professional implications.
Outside the class actions context, neither plaintiffs nor defendants are remunerated for contributions to their cases except in the form of the relief sought in the action or any award related to legal costs and disbursements. Parties are not usually compensated for giving evidence, instructing counsel, or participating in the litigation. As Justice Perell, a dedicated class actions judge of the Ontario Superior Court of Justice, has remarked, “lawyers, not litigants, are compensated for providing legal services.”
But representative plaintiffs do not conform to the standard litigant mold. Their role takes them beyond their personal interests to include representation of what may be many other people. Class actions often garner significant media attention. As the voice of the class, representative plaintiffs may have to divulge deeply personal aspects of their lives so that others can have access to justice. Given this reality, some argue that it is only fair that representative plaintiffs be (modestly) compensated. Others point to underlying ethical and professional issues, including actual or perceived conflicts of interest between representative plaintiffs and the rest of the class.
The ethical debate over awarding (or not awarding) incentive payments is discussed in a recent appellate decision in Ontario in the case of Doucet v. Royal Winnipeg Ballet, 2023 ONSC 2323 (CanLII). In Doucet, the Ontario Superior Court of Justice approved a settlement of a certified class action about alleged wrongdoing at a ballet school but denied a request for $70,000 in total payments to representative plaintiffs. The Superior Court found that, in a class actions system that heavily relies on entrepreneurial class counsel, the main responsibility of a representative plaintiff is to oversee and instruct class counsel on matters such as settling the action. The court reasoned that a monetary award that is not available to other class members could taint the instructions of the representative with self-interest, leading to an actual or perceived conflict of interest.
In Doucet, on appeal to the Ontario Divisional Court (a branch of the Superior Court that hears certain civil appeals), a three-judge panel overturned the lower court decision. The Divisional Court acknowledged that honoraria carry a risk of conflicts of interest affecting the complex dynamics between representative plaintiffs, the rest of the class, and class counsel, because, among other reasons, a representative plaintiff may be tempted to prefer an immediate financial benefit to the interests of the class as a whole. But it concluded that honoraria can still be valuable because of adequate safeguards that mitigate ethics and professionalism risks. Safeguards include requiring a representative plaintiff to go above and beyond the usual scope of duties inherent in the role and ensuring that payments are modest.
The decisions from courts in the U.S. on this issue have been mixed. The Court of Appeals for the Eleventh Circuit raised similar concerns in Johnson v. NPAS Solutions LLC, No. 18-12344 (11th Cir. Sept. 17, 2020). In that case, the court noted that “[i]ncentive awards are intended . . . to promote litigation by providing a prize to be won (i.e., as a bounty)[,]” and it cited old U.S. Supreme Court jurisprudence finding these types of monetary awards “decidedly objectionable.” The Eleventh Circuit was concerned that such awards would generate a conflict of interest between the interests of representative plaintiffs and those of nonrepresentative class members. While the Supreme Court of the United States rejected a petition for a writ of certiorari in Johnson v. NPAS Solutions LLC, other circuits have declined to follow the Johnson decision (notably, the Second, Sixth, and Ninth Circuits).
What remains clear, for now, is that honoraria remain available to representative plaintiffs. As a result, class actions practitioners should be aware of potential ethical and professional pitfalls that can arise in the context of settlements.
Undoubtedly, many representative plaintiffs would not act against the best interests of the class for personal gain. But even the appearance of a conflict could affect the reputation of the class actions system and the administration of justice. As Justice Winkler, a retired judge of the Ontario Superior Court of Justice, wrote in Tesluk v. Boots Pharmaceutical PLC, [2002] O.J. No. 1361, “[a] class proceeding cannot be seen to be a method by which persons can seek to receive personal gain.” All lawyers have a duty to uphold the public’s confidence in the administration of justice, so it is incumbent on class counsel to ensure that representative plaintiffs understand that the interests of the class are paramount.
Class counsel themselves are not immune from the risks associated with honoraria. Because of the standard contingent-fee structure, class counsel assume substantial risk when prosecuting a class action. Class counsel may therefore have a financial incentive to settle early to avoid the risk of not recovering any fee. While courts and class actions lawyers strive to protect the interests of the class and the administration of justice, extra caution is needed when an honoraria award is available. That caution will strengthen the confidence of the court and public that the acceptance of a settlement has not been tainted by self-interest, particularly in the adversarial void that accompanies settlement approval.
Class counsel can take practical steps to avoid or at least mitigate the ethical and professionalism pitfalls associated with incentive payments. For example, in addition to communicating to representative plaintiffs the paramountcy of the interests of the class, class counsel can emphasize that supplemental compensation awarded to representative plaintiffs is not assured and, when granted, is generally quite modest.
Class counsel can also refrain from routine requests for honoraria, reserving them for exceptional cases when the representative plaintiff has gone well beyond the call of duty. In Doucet, the Division Court expressed discomfort about the fact that awarding honoraria has become routine in Ontario, noting that such requests have been approved in more than 80 percent of settlements when requested. Restricting honoraria requests to instances of true merit will lend credibility to the practice, reinforce the value of the payments, and mitigate conflict of interest concerns.
In addition, special attention is needed in the context of cy pres distribution settlements when the appearance of a conflict between the representative plaintiff and the class is even more stark. In Tesluk, Justice Winkler observed that compensating a representative plaintiff when the class will not see a single penny “would be contrary to the precept of a cy-près distribution in particular and to class proceedings generally.”
Navigating the contentious terrain of incentive payments to representative plaintiffs calls for careful consideration of ethics and professionalism concerns. The challenges (especially for class counsel and the courts) associated with striking the right balance are at the heart of the debate over these payments and should be top of mind for practitioners.
