Incentive Awards: The Missing Analysis

Class actions make it economically viable for plaintiffs to pursue low-value claims. Through class actions, plaintiffs are compensated, and defendants are deterred. An important component of class actions is the class representative. Without a class representative, a class action cannot occur. Therefore, in an effort to induce class representatives to participate in the suit - and thus maintain the sustainability of class actions - class representatives are given incentive awards. These incentive awards seek to compensate class representatives for their work done on behalf of the class, to offset any financial and reputational risk, and to recognize their work as a private attorney general. Incentive awards became commonplace by the turn of the twenty-first century. However, the legal basis for them was rarely, if ever, discussed. Courts would frequently dodge the opportunity to address the permissibility of incentive awards - until recently. Since the end of 2020, four circuit courts have addressed whether incentive awards should be categorically banned: a result that would severely impact the viability of class actions. Yet, rather than addressing this question by analyzing whether there is a legal basis for modern incentive awards, the courts have focused on the applicability of a pair of over-a-century old cases. Therefore, despite the attention that incentive awards have recently received, the legal basis for such awards remains unclear. This Note seeks to provide the analysis that is missing: What, if any, is the legal basis giving courts authority to approve incentive awards to class representatives? In particular, this Note searches for a legal basis in Rules, common law, and principles of freedom of contract. Upon finding that incentive awards are legally permissible, this Note proposes a new framework for how courts should analyze incentive awards moving forward.