Class Action Lawsuits Increasingly Used as Leverage Against Small Businesses

Class action lawsuits, intended to protect public rights where individual damages are small but collective harm is significant, are increasingly being exploited as a pressure tactic, particularly against small businesses. The legal principle requires plaintiffs to demonstrate a personal cause of action and a genuine connection to the alleged harm. However, courts have recently tended to downplay the significance of this personal claim, focusing instead on broader questions of legal violations and the existence of an affected group. This shift allows serial litigants, who may file numerous similar claims, to proceed even when their personal connection is tenuous.

The problem is exacerbated when small businesses are the target. Unlike large corporations with legal departments and risk management budgets, small businesses operate on thin profit margins and often lack ongoing legal counsel. They may not realize that minor technical deviations from regulations could lead to multi-million shekel class action claims. For instance, reservists returning from military service and trying to rebuild their businesses have faced substantial class action requests, causing significant financial distress, reputational damage, and uncertainty.

This dynamic gives serial plaintiffs an advantage, as they understand the vulnerabilities of small businesses and the psychological impact of prolonged, costly legal battles. Faced with power imbalances and the difficulty of protracted litigation, many businesses opt for quick settlements, even when the claim's merits are unclear. The article argues that a stricter judicial approach to the requirement of a genuine personal cause of action is necessary to restore balance.

While small businesses must comply with the law, the current trend risks turning class actions into a procedural tool for pressure rather than a mechanism for justice. The author suggests that a return to rigorously examining the personal claim requirement would strengthen the legitimacy of class actions, distinguishing between genuine grievances and exploitative litigation. A recent example cited is a rejected class action against "Yad 2" over a refund policy.