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NFIB Alabama: Frivolous lawsuits are making a bad economic situation even worse for small businesses

Inflation may be one of the biggest challenges facing Alabama’s small businesses, but frivolous lawsuits make a bad situation even worse.

Many lawsuits are legitimate. If you’ve been wronged, you have a constitutional right to seek justice. However, some lawsuits are brought for the wrong reasons. They’re filed because someone sees a chance to make money.

Small businesses operate on tight margins. Instead of using their limited resources to run their businesses, owners must spend thousands of dollars on legal fees and, sometimes, make big cash settlements.

That makes it harder for small businesses to grow and create jobs and drives up the cost of insurance. Insurance companies factor the cost of possible legal actions into everyone’s premiums. That leads to higher prices for every Alabamian.

That’s why Alabama’s small businesses need legislators to support House Bill 420 and Senate Bill 293, the Lawsuit Fairness Act of 2024.

The current legal system gives too much power to the plaintiff trial lawyers who make money by suing businesses. House Bill 420 and Senate Bill 293 would not stop people from suing if they’ve been genuinely hurt, but it would ensure that both sides are treated fairly.

It would shine a spotlight on third-party financing companies that cover the cost of lawsuits that don’t concern them. It would also ensure that any experts brought in to testify know what they’re talking about, and the legislation will require truth in advertising so lawyers cannot exaggerate how much money they’ve won in court.

Right now, lawsuit abuse is like a hidden tax on everyone. A 2021 report by The Perryman Group found that lawsuit abuse costs the average Alabamian $731 a year and costs the average family $1,016 a year.

Put simply, lawsuit abuse leads to higher prices for everyone who lives here, but it gets worse. Paying higher insurance premiums and cash settlements forces employers to make difficult decisions about raising prices, laying off employees, or even closing their businesses.

Just the threat of a lawsuit makes it scary to do business. It’s hard for new entrepreneurs to start up when they’re worried about getting sued. And with prices going up because of inflation, it’s even harder for small businesses to make ends meet.

The Alabama legal system should be a level playing field for all.

Rosemary Elebash is the Alabama director of the National Federation of Independent Business (NFIB).

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