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What businesses need to know about class action lawsuits

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When you think about a class-action lawsuit, you might have an image of many individuals who have all suffered harm or loss from a product or service, coming together to make a case against the manufacturer. However, the reality of class-action lawsuits can be varied and complex, and it’s possible for businesses, as well as individuals, to join forces as part of a suit too. Here’s all you need to know.

What is a class-action lawsuit?

In simple terms, a class-action lawsuit is when a large group of people or businesses who have suffered some form of damage or injury due to the misconduct of another entity come together and sue that entity.

A commonly-cited example of a class-action lawsuit would be if a defective product is released to the market and many consumers purchase that product, only to later get injured by it. Another example would be if a pharmaceutical drug is made available on a commercial level and said to be safe, only to later be discovered to contain harmful ingredients or cause serious long-term side effects in certain users.

What about class action lawsuits for businesses?

In many class-action lawsuit cases, individuals and members of the public are those who come together as part of the legal action. However, businesses can also file class-action lawsuits too if several of them have been harmed or damaged in some way by a product, service, or form of misconduct like a fraud.

The same core rules and definitions for class-action lawsuits still apply when businesses get involved, but the specifics of each case can vary, as companies can suffer economic and reputation damages in different ways when compared to the damages suffered by an individual.

For instance, the misconduct of one of your suppliers could affect your profits, supply costs, cash flow, and so on. These aren’t factors that individuals need to be concerned about, but for businesses, they’re of grave importance, and this often means that a lot more work, as well as a more refined approach, needs to go into preparing a class-action lawsuit for a business.

What’s involved?

As stated above, the specifics of each case will vary, but when businesses get involved in class-action lawsuits, it’s usually because their profits have suffered due to the actions of another company. Therefore, you’ll need to make sure to retain documents and gather evidence to prove these losses and tie them to the actions of the defendant.

What’s more, if you get involved in a class-action lawsuit with other companies, it’s highly likely that they’ll be in the same field as you and could even be your direct competitors. Getting into a lawsuit alongside rival companies can be a difficult situation to navigate, and the company that brings the class-action suit may end up serving as a representative of those rival brands, holding a fiduciary duty to each of them and being responsible for protecting their interests as well as their own.

For these reasons, it’s vital for any company consider a class-action lawsuit to be fully aware of what they’re getting into. You need to know what will be expected of you as you move forward, including discovery obligations and fiduciary responsibilities, as well as the labor and resource costs of finding, storing, and collating evidence and data to support your case.

What are the advantages of class-action lawsuits for businesses?

We’ve seen that class-action lawsuits require a lot of work, so what are some of the advantages of taking this course of legal action? Well, in some cases, they may be the best way to get the settlement and compensation you’re looking for. Working together with other companies allows you to save massively on costs and have far more evidence overall to support the case against the defendant and prove their misconduct.

The process is also much more streamlined and quick to get through, as even though there are many companies forming part of the process, it only requires one court, one judge, and a single decision too. What’s more, each of the plaintiffs receives a similar settlement, so if you get involved in a class-action lawsuit, you and the other companies can all get the payouts you’re looking for.

Is it worth it?

Ultimately, this is one of the most common questions that entrepreneurs and business owners have to make when it comes to whether or not they should get involved with a class-action lawsuit, and really, the answer will vary from case to case.

In most cases, if your profits have been harmed or your business has been damaged in some way due to the actions or misconduct of another entity, filing a class-action lawsuit can be the smartest and simplest way to get the settlement you seek.

As outlined above, there are many unique advantages to take into account and this process can be highly efficient and streamlined, as well as giving you the best chances of success as other companies join the cause and provide their own evidence and data to support their claims and yours.

So there are a lot of pros, but it’s worth remembering the downsides too. Class-action lawsuits can be a lot of work. They will demand time and effort from your company, and you’ll need to be dedicated to this investment of effort if you want to push your claim to a successful conclusion.

It’s also worth noting that not all class-action suits are successful and sometimes they can fail to provide sufficient compensation, leading to further legal claims and more investment, so you need to be sure of where you stand and what chances you have before starting one.

Small businesses may also have hesitation, as they won’t necessarily have their own in-house legal teams to advise them, but contacting an attorney and asking some questions can help you get a better idea of the situation.

Final word

Class-action lawsuits may seem complicated at first, especially from a business perspective, but with the right preparation and experienced legal assistance on your side, your company can be successful and get the justice you seek.

About Susan Melony

susanm@thebusinesswomanmedia.com'

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