Small Businesses and Product Liability

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What is the Relationship Between Small Businesses and Product Liability?

From the perspective of a small business owner or operator, it is helpful to understand how product liability laws may affect your company.  This is especially important if your business organization is engaged in the manufacturing, distribution, or sale of products to the public. 

Issues such as product liability and defective products are typically associated with larger businesses like corporations, major retail chains, or joint business ventures.  However, products liability laws apply just as well to small businesses and start-up companies.  Small businesses are bound by state and federal laws when it comes to providing products that are safe and effective. 

What Factors are Considered When Determining the Liability of a Small Business?

Most products liability claims are based on general legal theories such as negligence, strict liability, and occasionally breach of warranty.  The most common factor in most products liability claims is that of negligence.  Negligence can be proved when:

If any of these factors are not satisfied, it will serve as a defense, and the small business cannot be held liable for products liability injuries.  For example, if the plaintiff cannot demonstrate that they actually suffered losses, the small business cannot be held liable for negligence. 

However, other legal theories such as strict liability and breach of warranty may involve a more complex legal analysis requiring the assistance of an attorney.  In general, courts will also consider the following factors in any products liability lawsuit:

In other words, small business owners and operators should keep themselves well-informed regarding the standards and progress surrounding the particular industry that they are engaged in. 

What are Some Recommended Steps To Avoid Products Liability?

Of course, there is really no such thing as an “absolutely safe” product.  Even products that are considered very safe can become dangerous if used in the wrong way.  Therefore the most important step you can take is to make sure your products have the appropriate warning labels and instructions.  This may require foresight- you may need to get creative in order to anticipate the various ways in which a product may be mishandled or misused. 

Warnings and labels should be clear and concise, easy to understand.  Diagrams and pictures are helpful, as well as the use of multiple translations into different languages.  Many products liability claims arise because of “inadequate warnings”- that is, the warnings are either non-existent or difficult to understand. 

Finally, liability may depend on the specific role that your small business plays (manufacturer, assembly line, distributor, etc.).  It is sometimes possible for a small business to be held liable for products liability if it incorporates or uses a defective part in its product, even if the part was manufactured by a different company.  When dealing with multiple distributors or assemblers, it is helpful to negotiate a contract with other parties discussing liability amongst the parties.  

Do I Need a Lawyer for Issues with Small Businesses and Product Liability?

Small businesses can be a source of satisfaction and enjoyment for the owner/operator.  You should take steps to inform yourself on how to protect your business assets.  Products liability claims can be avoided through proper planning and by working closely with a lawyer for advice and guidance.  If you have become involved in a products liability dispute, an experienced lawyer can represent you in court and determine the available defenses. 

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Last Modified: 11-15-2011 12:10 PM PST

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