Here in New Jersey, it's no secret that the private sector is struggling to create jobs. The state continues to have the highest unemployment rate in the region more than three years after the economic downturn began.
Neither New York, Pennsylvania, nor even Ohio has more residents out of work than New Jersey, where the unemployment rate is 9.1 percent. Fortunately, Gov. Christie and the Democratic Legislature agree that we need to remove roadblocks to economic growth. They are frequently cited as a combination of inflation and overly burdensome regulation on businesses.
But there is an invisible roadblock to economic growth as well: lawsuits.
Retaining and creating small-business entrepreneurs are keys to the next phase of New Jersey's recovery. Nearly 40 percent of New Jersey's work force is employed by a small business. And these businesses operate under constant threat of litigation.
A recent Rutgers-Eagleton survey revealed that 25 percent of New Jersey's surviving small businesses have been threatened with litigation during the past five years. This number jumps to 40 percent in South Jersey. According to the survey, liability insurance premiums for small-business employers rose across the board, whether claims were filed against the business or not. So it's not surprising that an astounding 87 percent of all small-business owners surveyed want the Legislature to prioritize legal reform.
Liability insurance for small-business owners is similar to automobile insurance for drivers. If you're a good driver, you rarely need to use it. But your rates can vary for a multitude of reasons, including the number of accidents in the area where you live or the type of car you drive. That said, whenever someone fakes a slip-and-fall or goes to court instead of merely seeking a refund in the hope of winning a greater award - which courts currently permit in New Jersey - everyone is affected, and premiums rise.
Even with 87 percent of small businesses in agreement, the Legislature has been largely silent on legal reform issues as they've debated the best way to grow New Jersey's economy. Investing in public works projects costs money, as do changes to the tax code. Few government policies can generate economic growth without creating systemic winners and losers.
The liability changes small businesses seek, however, promise real job creation without a taxpayer-funded investment. The U.S. Chamber of Commerce reported recently that we would stand to create 34,000 to 94,000 new jobs in New Jersey if our litigation laws are improved. Legal reform isn't a Republican or Democratic issue; it has the potential to become a bipartisan focal point for economic growth.
These changes include simple amendments to the state's Consumer Fraud Act. Its many loopholes permit suits against small businesses - particularly contractors - for infractions as minor as not including a start and end date on a contract for a one-day job, irrespective of how expediently the job may have been done. Another such change would require consumers to ask management for a refund - as the vast majority of us already do - before going to court to seek punitive damages. These loopholes target honest businesses and push liability insurance premiums even higher. The U.S. Chamber of Commerce recently found that New Jersey has the nation's highest litigation costs per 10,000 people in the country.
Lawsuits take time and money, and getting out of a frivolous lawsuit unscathed is nearly impossible. Small-business owners understand this reality all too well, and many settle to avoid additional legal expenses and time away from their business. The Rutgers-Eagleton survey tells us what lawsuits do to small businesses once they strike directly: Twenty percent raise prices for their products and services; 32 percent discontinue products or services, lay off employees or cut their hours; and 45 percent limit plans for expansion. New Jersey doesn't need these restraints with an unemployment rate exceeding 9 percent.
Small businesses are New Jersey's economic backbone. But New Jersey's lawsuit tax has become an economic stumbling block, preventing growth and needlessly driving up business costs. It's time for the Legislature to seize the mandate handed to it by the vast majority of our small-business owners and enact meaningful legal reform.
We all hope that Phase II of New Jersey's economic recovery is slated to begin. Let's make sure it happens on Main Street, and not in the courthouse.
Marcus Rayner is executive director of the bipartisan New Jersey Lawsuit Reform Alliance (njlra.org).