At least 93% of businesses may be excluded from the Class Action Law
The Knesset Constitution Committee will discuss an amendment to the law next week. A compromise has been reached, according to which businesses with an annual turnover of up to 9 million shekels will be excluded from the law's scope.
The scope of small businesses protected from class action lawsuits is expected to expand under a bill promoted by the Ministry of Justice. It appears that all small businesses with an annual turnover of up to 9 million shekels will be excluded from the law. This concerns 660,000 businesses, constituting at least 93% of the business sector in Israel, including authorized dealers.
According to the Small and Medium Business Agency at the Ministry of Economy, there are about 700,000 businesses in Israel. Most (85%) are micro-businesses with a turnover of up to 2 million shekels per year. 93% have a turnover of up to 5 million shekels per year. Another 36,147 businesses have a turnover between 5 and 20 million shekels. About 70% of these are authorized dealers lacking the resources to handle class action litigation.
Next week, the Knesset Constitution, Law and Justice Committee will hold an extraordinary session during the recess to discuss the amendment for its second and third readings. The decision was approved by the opposition in the consensus committee, with support from former MK Abir Kara, a key initiator of the amendment.
The original version, which passed the first reading in 2024, proposed protecting businesses with a turnover of up to 2 million shekels or up to 5 employees. Following a meeting led by the Ministry of Justice's Counseling and Legislation Department, a compromise was reached regarding the threshold for protection.
Disadvantages outweigh the advantages
Constitution Committee Chairman MK Simcha Rothman (Religious Zionism) and Kara sought to raise the threshold to 20 million shekels. The Federation of Israeli Chambers of Commerce pushed for even higher thresholds, arguing that the mere threat of class action lawsuits can drive businesses to collapse. Conversely, the Equal Rights Commission for People with Disabilities requested a lower threshold.
In the current draft, the definition of a small business remains open. The Small and Medium Business Agency noted that a 20 million shekel threshold would protect 90% of Israeli businesses. The committee is now tasked with finding a balance that protects businesses without rendering the law ineffective.
The amendment is part of a broader reform package promoted by the Ministry of Justice. The Civil Department, led by Deputy Attorney General Adv. Carmit Yulis, has decided to focus on a limited number of topics from the original proposal to ensure progress.
Explanatory notes to the bill state that for small businesses, the costs of litigation outweigh the benefits, particularly as violations are often committed in good faith without professional legal counsel. However, critics argue that such exemptions could discourage compliance with the law.
Obligation of prior notice
Another significant amendment requires prior notice for certain violations, allowing businesses 60 days to correct the issue before a class action can be filed. This applies to businesses with a turnover of up to 50 million shekels regarding minor violations, such as packaging weight, price display, spam, product labeling, and accessibility issues. The new version excludes fixed monetary rewards for applicants if the violation is corrected.
Responses
Abir Kara stated: "The committee discussion proves that the legal system can be fixed with broad support from both the opposition and the coalition. The factory of serial plaintiffs and lawyers is coming to an end. This reform will correct a terrible injustice that harmed the most productive public in the country."
Shahar Turgeman, President of the Federation of Israeli Chambers of Commerce: "The test of this law is simple: how many businesses it removes from the threat of class action lawsuits. We demand the highest possible turnover threshold, ideally 100 million shekels. We need a real defensive wall for small and medium businesses."
Adv. Doron Radai, Chairman of the Class Action Committee in the Central District of the Bar Association: "Focusing on protecting small businesses is a correct step. The definition should align with the original 2 million shekel threshold. Status as a small business should be a defense argument supported by an accountant's certificate, creating a simple mechanism that prevents unnecessary litigation."
