The EU’s Collective Redress Directive — The Potential for Collective Consumer Lawsuits: An Introduction

The European Parliament formally endorsed the text of a new collective actions legislation, “Directive (EU) 2020/1828 of the European Parliament and of the Council of 25 November 2020 on Representative Actions for the Protection of the Collective Interests of Consumers and Repealing Directive 2009/22/EC” (November 24, 2020), which provides the potential for collective consumer lawsuits to the European Union.

In this series of alerts, we will analyze what the Collective Redress Directive means for companies doing business in the EU.

Procedural Status Update

The European Parliament’s November 24 formal endorsement followed a fairly protracted procedural saga. The Directive was first presented in April 2018 as part of the “new deal for consumers,” a legislative package drafted in response to high-profile cases involving “mass harm,” or breaches of consumer rights in multiple EU member states, like the Volkswagen diesel investigations and lawsuits in which the manufacturer was alleged to have used software to secure certain results on diesel emission tests.

This resulted in negotiations over drafts of the Directive, with some arguing that earlier versions did not provide enough legal certainty for businesses. The onset of the COVID-19 global pandemic also delayed negotiations, with various business and industry associations issuing a joint statement in June 2020, warning that the Directive should not be rushed to implementation during the health crisis.

Following the European Parliament’s formal endorsement of the Directive, by the end of 2022 the 27 EU member states are required to translate the Directive into national law and implement an effective procedural mechanism that will allow “qualified entities” to commence representative lawsuits on behalf of consumers. Specifically, the Directive provides that “Member States shall adopt and publish, by 25 December 2022, the laws, regulations and administrative provisions necessary to comply with this Directive.” Enforcement of the Directive by EU member states must commence by the middle of 2023: The Directive provides that member states “shall apply those measures from 25 June 2023.”

Purpose of the Collective Redress Directive

“Globalisation and digitalisation have increased the risk of a large number of consumers being harmed by the same unlawful practice” according to the Directive, and “[w]ithout effective means to bring unlawful practices to an end and to obtain redress for consumers, consumer confidence in the internal market” of the EU “is reduced.” The Directive aims to “boost consumer confidence, empower consumers to exercise their rights, contribute to fairer competition and create a level playing field for traders operating in the internal market.” To do so, the Directive is designed to harmonize enforcement of consumer protection laws throughout the European Union, safeguard consumer interests and protect against abusive lawsuits. The “Directive aims to contribute to the functioning of the internal market and the achievement of a high level of consumer protection” by enabling certain entities to request that conduct which infringes upon EU law “be ceased or prohibited and to seek redress, as appropriate and available under Union or national law, such as compensation, repair or price reduction.” At the same time, the Directive recognizes “[i]t is important to ensure the necessary balance between improving consumers’ access to justice and providing appropriate safeguards for [those doing business in the EU] to avoid abusive litigation that would unjustifiably hinder the ability of businesses to operate in the internal market.” While several EU member states — 19 out of 27 members — already have various representative action mechanisms in place to address mass harms, the Directive strives to ensure all consumers in the European Union have access to representative actions.

The Collective Redress Directive at a Glance

Under the Directive, “qualified entities,” such as consumer organizations and public bodies, may bring representative lawsuits on behalf of consumers against “traders” for violations of a limited list of 66 EU laws set forth in Annex 1 of the Directive, including those related to general consumer law, data privacy, energy, financial services, telecommunications, travel and tourism, and environment and health. “Traders” are “any natural person, or any legal person irrespective of whether privately or publicly owned, that acts, including through another person acting in that person’s name or on that person’s behalf, for purposes relating to that person’s trade, business, craft or profession.”

Through these representative actions, the Directive permits qualified entities to seek: (1) redress, including compensation, repair, replacement, price reduction, contract termination or reimbursement (referred to as the “Redress Measures”); and, (2) injunctive relief, such as a prohibition on an infringing practice (referred to as the “Injunctive Measures”). Procedurally, domestic and cross-border representative actions are available under the Directive. The “Directive should cover both domestic and cross-border infringements, in particular where consumers affected by an infringement live in Member States other than the Member State in which the infringing trader is established.” Qualified entities may represent groups of consumers from several EU member states in a single lawsuit before an EU member state’s national court. The Directive also “cover[s] infringements that have ceased before the representative action is brought or concluded, since it might still be necessary to prevent the repetition of the practice by prohibiting it, to establish that a given practice constituted an infringement or to facilitate consumer redress.”

Finally, the Directive calls for fee-shifting, featuring a “loser pays principle,” under which the prevailing party’s costs are paid by the losing party, as a protection against frivolous lawsuits. Individual consumers generally “should not pay the costs of the proceedings” under the Directive, but “in exceptional circumstances, it should be possible to order individual consumers concerned by a representative action for redress measures to pay the costs of the proceedings that were incurred as a result of those individual consumers’ intentional or negligent conduct,” such as “the prolonging of proceedings because of unlawful conduct.” The Directive also encourages transparency regarding the use of third-party funding, to the extent it is permissible under national law. The Directive provides that funding may not be provided to qualified entities by third parties with interests that conflict with those of the consumers at-issue.

What You Need to Know

The Directive provides a baseline from which collective action frameworks will be implemented by the EU member states. Member states will take action to implement collective redress procedures between now and late 2022. While the process may move quickly or smoothly in EU member states where consumers already have access to collective actions, these procedures are entirely new in other EU member states such as Luxembourg, Latvia and Estonia, where collective redress is not currently part of their respective legal systems.

While the world waits for each EU member state to unveil its laws pursuant to the Directive, the Directive itself is worthy of analysis. This series of alerts focuses on the Directive’s implications for entities directly or indirectly doing business in EU nations to explain what you need to know about the coming changes in the EU. Although the Directive does not go so far as to introduce U.S.-style class actions and coordinated proceedings in Europe, it does represent a significant shift in the consumer rights landscape of the EU. With coordinated proceedings making up a substantial portion of the litigation pending in the U.S., this series will provide insights from certain applicable U.S. coordinated proceedings for the benefit of our friends in the EU.

In particular, we will discuss recent updates as well as issues concerning:

• Who is a “trader”?
• Who is a “qualified entity”?
• What is the anticipated intersection between the Directive and various data privacy laws?
• What laws are subject to the Collective Redress Directive, and what laws — like various environmental laws — qualify as exceptions?
• What EU member states already have collective redress laws in place, and what will the Directive mean for those laws?
• What about the U.K. in light of Brexit?

Stay tuned for analyses of these and other issues under the Directive in the coming months in this series of alerts: The EU’s Collective Redress Directive.