The Dark Side of Class Actions: Overlapping Regulations and Excessive Liability

The National Assembly and the Ministry of Justice are pushing to expand the class action system. The intent—to strengthen meaningful relief for small-amount, large-number victims—is fully understandable. But the legitimacy of a policy goal does not automatically justify every aspect of its design. The retroactive application now under discussion, the opt-out approach, and overlap with existing regulations all require careful review, because they could impose liabilities on businesses that are difficult to foresee.

The most concerning issue is retroactive application. Among the class action bills being discussed in the National Assembly are provisions that would subject incidents that occurred before the law takes effect to the new class action procedure. Businesses calculate risk, arrange insurance and reserves, and make investment and management decisions based on the laws and institutions in place at the time of their conduct. Applying a litigation system created after the fact to past incidents goes beyond merely strengthening liability; it could undermine legal stability and predictability.

The opt-out approach could also excessively magnify the system’s impact. If even victims who do not separately indicate their intent to opt out are automatically bound by the judgment, cases such as personal data breaches or platform-related incidents—where the number of potential victims may reach hundreds of thousands or even millions—could expand into litigation on a massive scale. Meaningfully redressing victims’ rights and automatically maximizing the scale of litigation are two different things and should not be conflated.

The basic principle of damages is that liability should correspond to actual harm. If a company has harmed consumers through unlawful conduct, it should of course provide compensation commensurate with that harm. However, a system that first enlarges the total amount of liability without sufficiently confirming the extent of each individual’s harm or their intention to participate in the suit may drift away from the original purpose of civil liability: restoring victims. Class actions should be a means of helping victims, not a means of pressuring businesses.

In particular, caution is needed against an approach that directly imports the U.S. class action system into Korea. In the United States, rather than building dense ex ante administrative regulation at the front end of business activity, a strong system has developed of holding companies accountable through ex post and judicial controls—such as class actions and punitive damages—after problems arise. Within that institutional environment, class actions have functioned as an important tool for ex post control of unlawful market conduct.

Korea’s regulatory environment, by contrast, is different. Businesses are already subject to a wide range of ex ante regulations in the process of market entry and operation, including permits and approvals, reporting requirements, conduct regulations, supervision, and inspections. When problems arise, administrative sanctions such as surcharges and corrective orders follow, and punitive damages are already in force in a number of areas. If a powerful ex post liability mechanism modeled on U.S.-style class actions is added on top of this structure, the result may not be to fill regulatory gaps, but rather to create overlap between ex ante regulation and ex post sanctions.

Since the Ministry of Justice has officially designated the expansion of class actions for small-amount, large-number victims as a policy task in its work plan for the second half of this year, policymakers must consider not just the effect of a single institution, but its cumulative effect within the overall regulatory system. If class actions are combined at the same time with eased burdens of proof, broad evidence disclosure, punitive damages, and existing administrative sanctions, the regulatory costs and legal risks borne by businesses could rise far beyond a simple sum.

These burdens are likely to weigh more heavily on small and medium-sized enterprises, mid-sized companies, and innovative firms than on large corporations. Companies without sufficiently robust legal teams, insurance, and reserve capacity may be forced to bear enormous litigation costs and reputational damage even before final liability is determined. If risk becomes excessive, businesses will move toward avoiding legal exposure rather than trying new products and services, and the result may be reduced investment, employment, and innovation.

If the purpose of class actions is victim relief, then the system should be designed only to the extent necessary to achieve that purpose. Retroactive application to incidents occurring before the law takes effect should be excluded, and rather than introducing a broad opt-out system from the outset, policymakers should first consider methods that clearly confirm the parties’ intention to participate in litigation. Overlap with existing punitive damages and administrative sanctions should also be reviewed.

Strengthening corporate accountability and imposing excessive, unpredictable liability on businesses are entirely different matters. Consumers’ rights should be strongly protected, but the legal responsibilities businesses must bear should also be clear and predictable. Rather than extracting only America’s powerful ex post judicial control mechanisms and layering them onto Korea’s dense ex ante regulatory structure, the National Assembly and the government should design the scope and intensity of the class action system in light of Korea’s overall regulatory environment. The balance of the system should come before the speed of legislation.

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Original title: 집단소송제의 이면, 규제중첩과 과잉책임

Author: Gwang yong Go

Date: 2026-08-27

Source: https://www.cfe.org/bbs/bbsDetail.php?cid=press&pn=1&idx=29453