Expanding Your US Presence – Navigating the US Legal Environment

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Thursday July 24, 2014

Outside of a courthouseAs Canada’s small and mid-sized enterprises start growing and gaining momentum, their future strategies will often include the introduction of new products and services, and/or expanding their businesses into new markets. Canadians firms at this stage may look at increasing their presence in the United States.

Indeed, growing your business within the world’s largest marketplace is an exciting prospect. However, Canadian companies considering the US may encounter unexpected challenges such as overlooking differences in business culture or failing to account for US protectionist policies. They may also fail to properly account for the American legal environment or perhaps even shy away from the US altogether fearing a litigious society that may lurk south of the border.

Successful companies manage these potential risks by doing their homework, striving to understand the dynamics of their target markets and planning carefully for what’s ahead.

While there are many anecdotal stories about the US legal environment, it is important that each Canadian SME digs deeper, to develop its own perspective on the potential risks and rewards and then to determine its own strategy. It’s what business leadership is all about.

Canada and US: Different Legal Environments

The American legal system is different to Canada’s system, having been born out of a unique history, a distinct view on the role of government and a separate experience in both business and law.

Of course, every case is different, every industry has its own rules, and US laws can vary from state-to-state. Nevertheless, there are some overall trends that will help Canadian SMEs understand what they can anticipate with a prospective expansion to the south.

Frequency of Legal Action – It’s a widely held perception that the US is a more litigious environment. A 2010 study from Harvard University found the US had 3.3 times as many law suits as Canada (see Ramseyer and Rasmussen, Comparative Litigation Rates, Harvard John M. Olin Discussion Paper Series, Discussion Paper 681, 2010).

Time Spent Settling Contracts – The same Harvard University study also cited a World Bank index on “Doing Business” which found that firms in Canada spend longer enforcing and settling their contracts – an average of 570 days per case, compared with 300 days in the United States.

Number of Jury Trials – Lawsuits in the US are more likely to be decided by a jury, whereas civil jury trials are rare in Canada. American plaintiffs retain the right to request a trial by jury, and while Canadian plaintiffs can always request the same, our courts have more discretion to deny a jury trial. As a result, jury trials are almost unheard of for commercial litigation cases in Canada.

Tendency for Lower Damages –Every case is different, but damages awarded in Canadian cases tend to be substantially lower than damages awarded in the US. The trend is due to the fact that the Supreme Court of Canada has capped general damages at the federal level, while there is no equivalent cap for US federal cases. Moreover, most of the high profile US cases, with their multimillion damages, were awarded by juries, while a Canadian court presided over by a judge is less likely to award sky-high damages to a plaintiff.

Doing Your Homework

In assessing US opportunities, Canadian firms should expand their knowledge of US law, keeping in mind that they may have to consider both federal and state laws. Furthermore, as the United States is a much larger country, and as there are many more US states than Canadian provinces, there are probably more jurisdictions and legal systems to comprehend.

Many states have business courts to handle commercial disputes, and like Canada, many states also have mediation by Alternative Dispute Resolution (ADR) programs to avert the lengthy court processes.

Consulting Experts

When developing their growth plan for expanding their US presence, Canada’s small and mid-sized enterprises should consult the experts on potential liabilities for legal risk or complications, within the context of the legal environment in their targeted area.

Consult a Lawyer Canadian SMEs should find an experienced lawyer either in the US region they are targeting, or with a Canadian firm that has experience in that area.

Consult your Industry AssociationTrade associations work closely with their member companies and can put you in touch with other people from your industry who have undertaken similar endeavors. Their experiences and insights can help.

Consult other Businesses – There are SMEs from all sectors that have already blazed the trail to expand their business presence in the US. Canadian businesses should learn from them. Expanding in the US is truly a shared interest, and most companies will be willing to help one another by sharing experiences and best practices.

Expand in the USA Conference

Another key resource in this endeavour is the Expand in the USA conference being held March 24-25, 2015. Click here to learn more.