How to Protect Your Business from Lawsuits

Are you prepared for the financial hit, not to mention the stress and emotional impact, of a lawsuit? In a given year, roughly half of small businesses face litigation or are threatened with it. For large corporations that can afford in-house legal counsel, lawsuits are a cost of doing business. But for small businesses, a lawsuit could be a hit to their bottom line that can be difficult to absorb.

Small Businesses Bear a Disproportionate Litigation Burden
A Small Business Administration (SBA) survey found that an estimated 36-53% of small businesses are involved in civil litigation each year. The cost to businesses stemming from litigation increased from $300 billion in 2016 to $343 billion in 2018, according to the Institute for Legal Reform (ILR).

Why Small Businesses Get Sued
Lawsuits brought against small businesses can stem from a range of claims, including contracts, personal injuries, civil rights, and wages. Generally, these disputes fall into one of three buckets: customer disputes, employee disputes, and disputes with other businesses.

●   Discrimination based on violations of state or federal law, such as the Americans with Disabilities Act (ADA)
●   A personal injury suffered on the business’s premises

●   Violations of wage and hour laws
●   Workplace harassment or a hostile workplace environment
●   Violations of workplace discrimination laws
●   Wrongful termination
●   Workers’ compensation

●   Breaches of contract
●   Intellectual property issues, such as copyright infringement

Business Lawsuit Protections
You can protect yourself and your business from the threat of legal action by taking the following steps:
●   Choose the right business structure. A sole proprietorship is the simplest business structure, but it does not separate your personal assets from your business assets, which means that your personal assets could be at risk from a lawsuit. Incorporating your business as a C corporation, S corporation, or LLC to help protect your personal assets.
●   Insure your business. Your business probably has general liability insurance that protects you against slip-and-fall accidents and other injury claims. You may not be as well-protected against breach of contract claims or claims of discrimination, harassment, retaliation, or wrongful termination. Ensure that your insurance accurately reflects the full range of business lawsuit risks.
●   Use contracts. Ensure that your deals with other businesses and customers are formalized in written, legally binding contracts that have been prepared or reviewed by your lawyer.
●   Educate your staff. Human resources policies are useful for directing internal conduct and customer service, but training and education are needed to enforce those policies. Ensure that everyone employed by your business understands what is and is not appropriate conduct.
●   Protect your data. Businesses are required to keep records of certain employee data, and the data you collect from customers can be a marketing game changer. Criminals are also interested in this data, and if a data breach occurs, you could be sued.