Class action lawsuits emerge when multiple people feel wronged by a business. Stanford University reported an increase in class action settlements of 21% from 2021 to 2022.
This type of legal action can have significant impacts on a company, affecting its reputation, finances and the way it operates.
Reputation damage
A class action lawsuit can affect your business’s reputation by drawing negative attention. It can be difficult to manage your public image as information may come out in various media sources. A damaged reputation could lead even loyal customers to question if they should continue doing business with you.
Financial burden
Financially, a class action lawsuit can be a huge burden. Not only is there the loss of business that is likely to occur but also fighting the legal battle can be expensive. If there is a judgment against your company or a settlement in the case, it also is typically quite costly. In some situations, the financial burden is so big that a company has to file for bankruptcy.
Business operations
The way your business operates might also change as a result of a class action lawsuit. A judgment may require altering certain policies or practices, or you may have to implement new procedures to take specific actions to comply with the court’s ruling. To avoid future issues, you may voluntarily decide to alter substantial areas of your business.
The goal of a business is to avoid a class action lawsuit. However, if you find your business facing legal challenges, knowing the potential impact can be helpful in how to approach the situation.