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A Dozen Ways to Protect Your Business from Lawsuits

publication date: Dec 7, 2016
author/source: Barbara Weltman



Small businesses are sitting ducks for legal actions. According to the U.S. Chamber of Commerce, abusive lawsuits cost small businesses $88 billion a year.

Even if you are in the right, it can cost you serious time and money to defend yourself. And sometimes, you can be forced to pursue legal action to enforce your rights. According to an SBA report*, legal fees of small businesses can range from $3,000 to $150,000. A better course of action is to avoid legal problems. Here are a dozen ways to keep your business safe, or at least as safe as possible.


A Dozen Ways to Protect Your Business from Lawsuits


  1. Don't ignore customer complaints. They may be legitimate and easy to resolve, but if you don't respond, they can escalate into a serious legal matter.
  2. Compromise. Some disputes can be nipped in the bud if you agree to settle the matter quickly, even if you believe you ultimately could prevail. In the long run, you'll probably save considerable legal fees.
  3. Require payment up front. This avoids lengthy collection activities that could wind up in court.


  1. Do careful background checks on employees. If you don't, you may be hiring a lawsuit. For example, you don't want to engage a worker with a suspended driver's license to drive your company truck. A quick and inexpensive check will uncover this information.
  2. Determine worker classification carefully. Don't label a worker as an independent contractor if he/she is really an employee. You can face action from the IRS as well as your state with respect to unemployment insurance and workers compensation.
  3. Train personnel in company practices. This includes education in avoiding sexual harassment, safety practices, etc. This can avoid problems before they arise. Having an employee handbook, and making sure each employee reads and follows it, is also useful in avoiding employee claims.
  4. Give warnings. If employees do things that are objectionable -- they are continually late, they fail to follow rules, etc. -- warnings can correct a problem that could otherwise develop into legal action. For example, a warning to an employee who is tardy can avoid the need for terminate this employee and the legal actions that could result from termination.
  5. Carry employment practices liability insurance (EPLI). If you are sued by an employee or former employee for a job-related violation, such as sexual harassment or age discrimination, the insurance company will defend you. Having the insurance won't avoid legal action, but will considerably reduce your financial exposure.


  1. Get agreements in writing. Use comprehensive order forms to make sure all the terms of the sale are clear. This avoids the problem of he said, she said about prices, delivery dates, etc.
  2. Get permission or releases for using information. If you want to post an article written by someone else, just ask for the right to do so and you'll avoid copyright issues.

The public

  1. Check for on-sight safety issues. Avoid the "slip and fall" claims and other personal injuries that can result from unsafe practices at your place of business. Of course, be sure to carry sufficient liability coverage just in case you are sued; the insurance company will defend you.
  2. Comply with federal and state regulations. For example, be sure that your store or restaurant has the kind of public access which satisfies the Americans with Disabilities Act.

Read about lawsuit abuse, including the $54 million case against a drycleaners over a pair of pants, at Faces of Lawsuit Abuse.org.

About the Author: Barbara is Small Biz Advocate, Author, Speaker, Radio Host, Tax Law Specialist, Publisher - Big Ideas for Small Business - Idea of the Day



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