Litigation can be a killer for small business. Recent studies by the Small Business Administration show that lawsuits are costly for small businesses, often cause emotional hardship for business owners and their families and also often result in changes to how small businesses operate. Limiting your potential for exposure to lawsuits can help you avoid these problems and keep your business up and running.
There’s no question that today’s society is litigious. More than 16 million civil suits are filed in America’s courts each year and the U.S. has more attorneys per capita than any other nation in the world.
The typical small business lawsuit costs between $3,000 and $150,000 and and takes about two years to litigate. The legal costs and uncertainty caused by the unknown outcome of the suit can cause huge problems for any business, and the personal cost of suits – stress and emotional hardship – also take their toll on business owners.
Knowing how to head off potential lawsuits can help reduce the likelihood that your business will have to go through the nightmarish experience of a civil suit. By following the tips below, you can reduce your risk of litigation:
Employee suits
Employee lawsuits are a big risk for small business. Some of the most typical employee lawsuits include claims for:
- Sexual harassment
- Discrimination based on age, race, religion or gender.
- Workplace bullying and harassment
- Injury claims
- Whistle-blowing retaliation.
There are a number of ways that you can reduce your legal liability from these claims. For starters, have clear policies in place on how employers and managers are expected to behave, train your employees and managers in these policies and enforce them consistently. By doing so, you may head off suits by eliminating the circumstances that lead up to them. If something does go to trial, you have evidence that your business did not tolerate and attempted to prevent illegal or improper actions, which may be enough to cause a favorable outcome or, at the very least, mitigate damages awarded to the plaintiff.
Personal injury claims
Personal injury claims by visitors to your store or people who get involved in accidents with your company’s vehicles or equipment can take you to court. Personal injury claims are among the most preventable legal claims. To ward off these suits, make sure you:
- Set safety and quality standards for your workplace and employees. Train your employees in proper safety procedures and enforce your policies.
- Regularly inspect all company property for safety, and make any and all repairs needed in a timely fashion.
- Comply with all federal and state safety standards.
- Comply with safety standards set forward by trade organizations in your industry.
- Require employees operating vehicles and machinery to be responsible and properly trained.
- Routinely give employees refresher courses in their safety training.
Contracts
When you enter into a contract with another business or client, you can be sued if you breach the terms of that contract in any way. To avoid claims of bad faith, breach of contract and other claims, be sure to:
- Read and understand the terms of all contracts before signing them.
- Seek legal advice before signing a contract.
- Be sure to live up to the terms of the contract.
- If you can’t live up to the contract, contact the other party and try to renegotiate before you breach the terms.
- Immediately seek the advice of an attorney if you are informed by the other party of a breach of contract or an intent to sue your business.
Lawsuits over product defects and services
Lawsuits over faulty products or unsatisfactory services can be another legal pitfall faced by small businesses. Small businesses can avoid these types of lawsuits by clearly defining what the products or services they offer are intended to do, and making sure their products and services meet these requirements.
Frequent quality control inspections and audits can also help stave off incidents that may give rise to these types of suits.
Keep a competent attorney on retainer
By establishing a relationship with an attorney familiar with your business or field, you can help your chances in avoiding lawsuits and winning them if they occur. A good attorney can help work out disputes with aggrieved parties, broker settlements and defend you in court if a case goes to trial. The better the attorney knows your business, the better he or she will be able to defend you it court.
Get insured
Most insurance policies available to businesses offer indeminification of claims, as well as coverage for the cost of a legal defense. By insuring yourself from possible sources of claims to your business, you can ensure that you’re covered in the event of a lawsuit, thus reducing your risk of losing your own money in the event of a suit with an unfavorable result.
