Israel Debates Bill to Shield Small Businesses from Class Action Lawsuits

Israel's Knesset Constitution and Economics committees convened an unusual joint session during an election period to discuss a significant reform of class action lawsuits. The core of the debate centers on a proposed amendment that would largely shield small businesses from such litigation. This move comes after two decades of the current law, during which small businesses have faced an unprecedented number of lawsuits, often for minor infractions, leading to disproportionate financial damage.

The proposed legislation aims to exclude businesses with an annual turnover of up to 9 million shekels (approximately $2.5 million) from class action suits, though business representatives are pushing for this threshold to be raised to 20 million shekels. The discussion, held under the auspices of a cross-party consensus committee, is prioritizing the protection of small businesses, deferring other aspects of a broader bill that passed its first reading two years ago. However, the current draft also includes changes to attorney fees and other provisions.

Proponents of the reform, including business associations like the Federation of Chambers of Commerce and LAHAV, argue that class action lawsuits have become a tool for extortion by lawyers, crippling small enterprises. They cite examples of hotels facing costly lawsuits over minor discrepancies, such as a few square meters in room size, leading to substantial legal fees and forced settlements.

Conversely, representatives for people with disabilities and consumer advocates express strong opposition, arguing that the reform would undermine essential protections. They contend that class action suits are crucial for enforcing accessibility laws and consumer rights, especially given the limited resources of regulatory bodies. They advocate for a lower turnover threshold, around 5 million shekels, for any such exclusion, emphasizing that accessibility violations significantly impact individuals with disabilities.

Legal experts also raised concerns, warning that a complete shield could disincentivize compliance and that individual lawsuits are rarely filed, potentially leaving significant public harm unaddressed. The updated proposal includes a mandatory 60-day pre-litigation notice period for certain violations, such as incorrect weight labeling or spam, if the issue is not rectified.