Class action suits are in the news quite a bit recently. A law student in Austria has begun a class action suit against Facebook. Asserting the company has violated privacy laws, the suit demands 500 Euros per person in damages and so far, 17,000 people have joined the suit. AIG reached a $960 million settlement in a complicated class action suit that had to do with securities fraud during the financial crisis, and the NCAA recently settled the class action suit brought against them regarding concussions.
It’s easy to think that such suits are reserved for grievances against big and powerful companies, but almost any company that employs people, provides a service or produces goods can be the object of a class action lawsuit.
The basics on class action suits
The Class Action Fairness Act of 2005 updates and outlines grounds established for class action suits under Rule 23 of the Federal Rules of Civil Procedure (you can read a good summary on the Cornell University Legal Information site). In short, a class action can be filed in state or federal court, but it must have claims that exceed $5 million and meet other basic criteria. Once the suit is filed, it is up to the judge in the case to certify that the case is, in fact, a class action suit. The judge will then set the definitions for the class, and members of that class are notified under the guidelines set out in the Class Action Fairness Act.
Class action suits can be brought against a company on a wide variety of topics. Employees can assert that they have been discriminated against on the basis of race or age, or that they’re working in a hostile environment. Environmental factors can cause class action suits against a company that is suspected of polluting or otherwise harming land, water, or air in a specific region.
The production and distribution of a defective product can be the root of a class action suit, or a company’s financial or security practices can be the cause – consider what Target might experience as customers accuse them of not doing enough to bolster security and prevent hacking.
Could you be a target?
Depending on what kind of company you run, you could be susceptible to a number of different types of class action suits. Consider how many employees you have, what kind of products you make or the type of services you provide, and play devil’s advocate for a little while to check your vulnerabilities. Could an environmental group bring a suit against you for a perceived infraction against local or regional laws? Has HR had a spate of complaints recently that show any kind of pattern of discrimination? Do you work with an outside auditor often enough to feel secure that your company’s financial practices are above scrutiny?
Adding some safeguards may be enough to ensure that you won’t be the subject of a suit, but it’s always a good idea to make sure that you have coverage in place to help pay for legal and ancillary costs in case a suit is ever brought against you. As your company grows, you need to adapt to the success your growth brings, but also the new vulnerabilities you face. Talk with your insurance broker to see what type of liability coverage you have in case of a class action suit. If you feel like your situation calls for additional coverage, consider a captive insurance company as an option – contact us and we will be happy to work with you to see if it’s a viable solution.