Class action lawsuits are becoming more popular. Instead of people unilaterally suing companies, they’re hiring law firms to represent them as a group, allowing them to get greater financial leverage and more access to justice.
Class action has been around for a long time. But it is only recently that systems have come into place that make it more accessible. And this new reality is terrifying sellers. Changes in the structure of civil cases means that they could find themselves on the receiving end of a lawsuit at any time.
What Are Class Action Lawsuits?
Class action lawsuits come about when two or more individuals make a claim against the same wrongdoer. In most cases, people file class action lawsuits against companies, though they can file against other societal entities too.
When companies face class action lawsuits, they are at risk of substantial losses. In many cases, organizations settle outside of court, often paying large sums of money to those they allegedly did harm. Typically, the settlement route is preferable to going before a judge where the compensation is even larger.
Why Do Class Action Lawsuits Arise?
Class action lawsuits typically arise for two reasons:
- Defective products
- False promises
For instance, defective drugs and devices attorneys regularly represent people seeking class action if medications harm them. Physicians and hospitals will sometimes allow groups of patients to use devices and technologies that haven’t passed the proper safety procedures, opening the door to negligence claims against them.
False promises are another major issue. Here a company makes a tangible promise to its customers that it cannot deliver on. For example, Hoover offered customers free vacation benefits when they bought its products, but eventually it found the scheme too expensive and had to shut it down.
How Do You Protect Your Business Against Class Action?
Many businesses are shocked to find themselves on the receiving end of a class action lawsuit. They assume that it is something that only affects larger companies, not them.
But that’s not the case. Small businesses are often the target of class action, including sellers, often because they’ve made basic errors.
To protect yourself, you’ll need to do the following:
- Buy insurance. Many insurance companies offer liability insurance that covers class action lawsuits. Before you take out a policy, you’ll need to check the terms with a fine tooth comb. Make sure that the insurer actually protects against class action, not just individual claims against your firm. Research the average payout for class action cases in your industry and ensure that you have the appropriate level of cover.
- Audit your supply chain. Never sell customers junk. Always ensure that it meets all legal safety standards before distribution. Check with suppliers to ensure that you can trace every component from the source. Keep tabs on your shipments and put security features in place that let you identify counterfeits.
- Deliver on your promises. Lastly, never promise customers anything that you can’t deliver. Always make good on your promises and stay true to your word.