By Marcus Rayner | The Times of Trenton
November 28, 2010
An abundance of natural resources, an educated work force and low business costs made the Garden State ripe for the mom-and-pop shops and diners that at one time populated nearly every Main Street across the state. New Jersey shone especially brightly to would-be small-business owners across the Hudson River, and these attributes helped lure a good number of them from the five boroughs.
It’s almost inconceivable that within the span of a generation, the New Jersey we knew has become one of the most hostile business environments in the United States. The Monmouth University Polling Institute recently conducted a survey assessing the attitudes of small-business owners and operators in New Jersey, specifically asking about our state’s liability laws and how they affect their businesses. The results were startling: Among small businesses employing two to 50 workers, 20 percent have been sued within the last five years. Others expressed serious concern that they would be hit with litigation in the near future.
Among the more outrageous lawsuits business owners have had to deal with in the last few years involved a North Jersey car dealership, which was sued for accidentally overcharging a customer by approximately $40 on a car purchase. The customer went to court instead of asking for a refund. It was appealed all the way to the New Jersey Supreme Court, which found that a customer has no obligation to ask for a refund before suing under the New Jersey Consumer Fraud Act. Nor does the customer actually have to have been defrauded. As a result, an accidental double-charge on a restaurant bill can be grounds for a lawsuit, underwritten by consumers like you and me, who will pay the higher prices that restaurant will need in order to go to court or settle the claim.
Another notable lawsuit was filed against a Mercer County window installation business in 2006. The customer changed her mind about the windows the business had installed after the job was complete. She wanted them uninstalled, but she didn’t stop there — she filed a lawsuit under the Consumer Fraud Act. The business won on all counts, except one: The one-day job did not have a start and end date written on the contract. For this, the business was initially ordered to pay $35,000 in fees to her lawyer.
What’s most distressing is what small businesses do after they’ve been sued. According to the Monmouth Survey, nearly one-third of businesses reported having to lay off workers after being hit with a lawsuit. And unlike corporate America, where lawsuits are routinely handled by a company’s legal department, a full 85 percent of small businesses have had to hire an attorney as a direct result of a lawsuit — taking all of the money spent on litigation out of the economy along with it. Nearly half of the companies surveyed limited plans for expansion. One-third reported having to cut employee hours as a direct result of litigation, and one in five raised the prices of its goods and services. Others discontinued certain goods and services (32 percent), and nearly one in five considered closing its doors entirely.
Critics will tell you to look on the flip side: The majority of small businesses haven’t been sued, and even ones that have been sued don’t head straight for the Pennsylvania border. But the reality is that losing small businesses to other states as we continue to hemorrhage jobs across all industries will prolong our economic recovery and restructure our economy going forward. Small businesses have historically played a crucial role in getting the work force back on track after economic disarray, and in New Jersey, they have served a crucial cultural purpose as well. The fact that nearly one in five small businesses has seriously considered leaving New Jersey should set off alarms.
A bill before the Assembly Consumer Affairs Committee, A3333, would amend New Jersey’s Consumer Fraud Act to make it more comparable with national standards and mitigate the comparative disadvantage New Jersey’s entrepreneurs face. “When any businessperson can be dragged into court on any day, for virtually any reason, it chokes off innovation, expansion and competition,” said Assemblywoman Amy Handlin, R-Middletown, who is co-sponsoring the measure.
The New Jersey I know doesn’t shy away when things are difficult. Do we really need to wait until more of our small businesses dissolve before we acknowledge that New Jersey has a lawsuit problem? At that point, it’ll be too late.