Israel Advances Legislation to Curb Lawsuit Abuse Against Businesses

A joint committee of the Knesset's Constitution and Economy committees has advanced significant amendments to the Class Action Law, aimed at reducing the exposure of businesses, particularly small ones, to legal proceedings. The proposed changes, which are nearing final approval, include exempting businesses with an annual turnover of up to 9 million shekels from the law's scope. Additionally, a requirement for prior notification and a 60-day period to rectify alleged violations will be established for five central causes of action, including those related to spam laws and certain accessibility claims.

Under the approved framework, businesses with an annual turnover not exceeding 9 million shekels will be excluded from the law, with this amount to be indexed to inflation. For specific accessibility claims and spam-related cases, businesses will be required to be notified before a class action lawsuit can be filed. They will then have 60 days to correct the alleged infringement. If the violation is rectified within this timeframe, a class action cannot be filed for it. For certain accessibility claims, this prior notification requirement will also apply to larger businesses with annual turnovers up to 50 million shekels.

The legislative push follows a prolonged campaign by the Federation of Chambers of Commerce, which argued that the class action mechanism was being misused. The Federation contended that lawsuits, originally intended to protect the public from consumer grievances, had become a source of income for lawyers through demands for settlements and legal fees. Small businesses, in particular, were allegedly targeted, often forced to agree to settlements and pay tens of thousands of shekels due to fear of high legal costs, lengthy proceedings, and reputational damage, even when they believed they had acted lawfully.

Supporters of the amendments argue that allowing businesses a chance to fix violations before a lawsuit is filed will reduce the incentive for lawsuits over easily correctable issues and differentiate between technical breaches and cases requiring legal intervention to protect public rights. The President of the Federation of Chambers of Commerce, Shahar Turgeman, hailed the approval as "tremendous news for hundreds of thousands of businesses in Israel" and the beginning of the end for the "exploitation of class actions." He thanked Justice Minister Yariv Levin and Constitution Committee Chairman Simcha Rothman for their roles in advancing the legislation.

The changes are expected to reduce legal expenses and settlement pressures for small and medium-sized businesses. While class actions remain a tool for consumer protection against widespread harm, proponents suggest that curbing their use in certain instances could lower business costs, potentially preventing these costs from being passed on to consumers through higher prices. The legislation is now set to be presented for a vote in the Knesset plenum.