Business Litigation on the Rise: What It Means for Business Owners

Business litigation is no longer a distant risk reserved for large corporations; it is a routine reality for companies of every size. Roughly 52% of U.S. small businesses experience a legal claim or lawsuit within their first five years of operation. As financial pressure and regulatory enforcement increase, owners confront a legal landscape where disputes surface faster and carry higher stakes, deeply embedding legal risk into everyday business operations. (1) 

The rise in business litigation points to structural stress across contracts, employment relationships, shareholder expectations, and compliance obligations. For business owners, the shift means legal exposure can emerge from routine decisions, from how contracts are enforced to how internal policies are documented. 

What’s Driving the Increase in Business Litigation 

Several forces are converging to push business litigation higher. Economic volatility has tightened margins, making missed payments, delayed performance, and pricing disagreements more likely to escalate into formal contract disputes. When cash flow becomes unpredictable, tolerance for informal resolutions shrinks. 

At the same time, enforcement standards have become less forgiving. Regulatory scrutiny now reaches deeper into employment practices, environmental compliance, and consumer protection. Even technical missteps can trigger civil litigation, particularly when multiple parties feel affected. 

Financial stress has also intensified high-stakes disputes tied to lending relationships and capital structures. Corporate finance litigation increasingly involves lender enforcement actions, challenges to fiduciary duty, and conflicts over repayment terms, disclosure obligations, and corporate control. These disputes often move quickly toward trial, prompting businesses to rely more heavily on trial-ready litigators as negotiations narrow and the cost of early strategic errors rises. 

Class Actions Are Reshaping Litigation Risk 

Class actions now represent one of the most significant sources of financial exposure for businesses. In 2025, over 1,700 class action lawsuits were settled for an overall cost of USD$79 billion. And that’s almost doubling the amount from the previous year. That newly set record highlighted how collective claims can reshape both financial outcomes and public perception. (2) 

These cases often stem from consumer complaints, employment disputes, and product liability claims. While settlement can cap uncertainty, it also brings reputational consequences that linger long after the courtroom clears. For many companies, class actions force difficult tradeoffs between speed, cost control, and public accountability. 

The scale of these settlements signals a broader shift in commercial litigation. Plaintiffs increasingly use class mechanisms to aggregate smaller claims into high-impact cases, increasing pressure on defendants to resolve disputes early rather than risk prolonged exposure. 

The Financial Burden on Small Businesses 

Litigation costs don’t fall evenly across the business landscape. A recent economic study found that commercial liability costs totaled USD$347 billion in 2021, with small businesses shouldering USD$160 billion of that burden. Even more striking, commercial liability costs rose 19% in a single year, climbing from USD$291 billion in 2020 to USD$347 billion in 2021. (3) 

Despite generating only about 20% of total revenue, small businesses absorbed 48% of commercial tort costs. The imbalance reveals how civil litigation can strain smaller operations more severely than larger enterprises with deeper reserves. (3) 

For businesses earning USD$1 million or less annually, litigation costs consume a disproportionately large share of revenue. In proportional terms, liability expenses are seven times higher than for companies earning USD$50 million or more. That disparity limits hiring, expansion, and product development, turning legal exposure into a growth constraint rather than a manageable expense. (3) 

Common Disputes Business Owners Are Facing 

Breach of contract remains the most frequent source of business disputes. Missed delivery timelines, warranty issues, and disagreements over performance standards often lead to contract claims under established commercial rules. These disputes can escalate quickly when documentation lacks clarity or when enforcement practices vary. 

Employment disputes also continue to rise. Claims involving workplace harassment, non-compete violations, and employment agreements frequently move from internal complaints to civil litigation. Once filed, these cases often involve extensive discovery requests that disrupt normal operations. 

Intellectual property litigation has become another pressure point. Disputes involving trade secrets, intellectual property rights, and unfair competition claims are more common as digital assets and proprietary processes gain value. Even unintentional disclosures can trigger allegations that require immediate legal response. 

Shareholder disputes add another layer of complexity. Disagreements over governance, financial disclosures, and strategic direction can lead to shareholder derivative suits and disputes between shareholders and directors. These cases often attract close scrutiny and can stall decision-making at critical moments. 

Managing Risk Through Dispute Resolution Options 

Not every commercial dispute must unfold in a courtroom. Many businesses turn to alternative dispute resolution to control costs and timelines. Arbitration forums and pre-trial mediation offer structured settings that can limit public exposure while preserving working relationships. 

Early settlement discussions often reduce financial risk, especially in cases where injunctive relief isn’t central. Still, some matters require full litigation practice support. Securities litigation, insurance coverage disputes, and complex commercial litigation often hinge on regulatory interpretation and demand extensive courtroom experience. 

Preparation plays a decisive role. Clear recordkeeping supports faster responses during the discovery process and reduces the risk of evidentiary objections. Businesses that implement litigation holds promptly and maintain consistent documentation practices often fare better when disputes arise. 

What Business Owners Should Take Away 

The growth of business litigation reflects lasting changes in how disputes emerge and are resolved. Legal exposure now extends beyond exceptional events into routine operations. Contract drafting, compliance oversight, and dispute resolution planning have become essential business functions, not optional safeguards. 

As litigation costs climb and class actions grow larger, preparation offers one of the few reliable ways to manage risk. Business owners who understand where disputes originate and how costs accumulate are better positioned to protect financial stability and operational continuity in an increasingly litigious environment. 

References: 

1. “Small Business Lawsuit Statistics (2025),” Source: https://gitnux.org/small-business-lawsuit-statistics/   
2. “Class Action Lawsuit Settlements Set Another Record In 2025”, Source: https://www.forbes.com/sites/edwardsegal/2026/01/06/class-action-lawsuit-settlements-set-another-record-in-2025/   
3. “New U.S. Chamber Study Shows Lawsuit System Costs Small Businesses $160 Billion”, Source: https://instituteforlegalreform.com/press-release/new-u-s-chamber-study-shows-lawsuit-system-costs-small-businesses-160-billion/