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The Microenterprise
Part Three


See also:
The Microenterprise — Part One
The Microenterprise — Part Two

P
 erhaps the greatest fear of businesses employing less than 10 persons -- i.e., three out of every four businesses in the United States -- is the fear of being hammered with a liability lawsuit. The Gallup Organization recently undertook a survey of more than 800 entrepreneurs that was commissioned by the National Federation of Independent Business Educational Foundation. 28 percent of the owner/managers of microenterprises with less than 10 employees live in dread of being sued sometime within the next five years. (This anxiety rises to 56 percent as the size of the firm increases!)

          This survey disclosed that 12 percent of the respondents have actually been sued during the past five years, and an additional 12 percent have been threatened with Court proceedings during this same period. Thus, these fears are indeed real and most appropriate; they are not paranoia. Ironically, less than two percent of the owner/ managers of microenterprises have initiated liability actions themselves during the past five years.

          Upon releasing the results of this survey on Wednesday, the 26th of April (1995), Jack Faris, President of the National Federation of Independent Business, observed, "Small-business owners have great concerns that our legal system is no longer based on evenly balanced scales. ... Legal blackmail prevails in our courts today. Most smaller businesses, even when completely innocent, choose to settle out of court rather than engage in the brutally expensive effort it takes to clear their name. The system is designed by lawyers for the benefit of lawyers. Justice is rare."

          Some meaningful legislative and judicial relief is imperative if the microenterprise is to survive. Among the common sense proposals are:

          Limit Product Liability Lawsuits. Product liability insurance is often the most costly line item in the budget of the smaller business due to frivolous lawsuits. The "right" to sue for the smallest product-related injuries and to embroil employers and manufacturers in expensive lawsuits has to be controlled. The exposure owner/managers have for product-related injuries must be limited, and soaring liability insurance costs have to be stabilized.

          Punitive damage limits. Awards for damages must be linked with the actual harm. Juries should not be misled by the owner's or the insurance carrier's presumed ability to pay. Both the frequency and the scope of liability litigation will be reduced when limits are placed upon punitive damage awards.

          The "English Rule". Frivolous, harassing, and wasteful lawsuits would be swiftly discouraged if the party losing a lawsuit were required to compensate the winner for their legal costs. This is known as the "English Rule" and has been well accepted in the UK for centuries.

          Proportionate Liability. Even if he/she is not responsible for the total harm done, a defendant today can be found responsible for the whole damage award. "Joint and several liability" has fueled an explosion in litigation and litigation costs. Defendants should be responsible for satisfying only their portion of the alleged harm and joint liability should be abolished.

          It is a difficult and emotion-ladened issue to address, but Americans are fully aware that our civil and criminal justice systems are in need of overhaul. A major lawsuit is frequently catastrophic for the owner/manager of a microenterprise who simply cannot afford the exorbitant costs of competent legal counsel or the equally wasteful costs of the time intrusions associated with extended discovery and trial. Wide ranging judicial reforms are urgent if economic strangulation is to be avoided.


Your comments and suggestions for these pages are most welcomed!

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Thomas A. Faulhaber, Editor

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