Common Business Mistakes That Could Lead to Lawsuits

Avoid committing some common business mistakes to prevent lawsuits from becoming a significant issue for your organization

A 2survey conducted by Penn Schoen Berland and Public Opinion Strategies found that 43% of small business owners have been involved or threatened with a lawsuit. 

If that number is concerning, there are things you can do to protect yourself and your business. For starters, make sure that you incorporate your company. This process ensures that you aren’t personally responsible for any damages, protecting your home and other assets.

You can also protect your business by avoiding the following mistakes, as you can never be too careful when it comes to potential litigation.

Not keeping documentation

You’ll never have 100% harmony in the workplace. There will always be employees who don’t perform to your requirements or have behavioral issues. Warning or disciplining an employee is often your initial response, and you could even end up having to fire someone.

Any time you discipline an employee, you’ll want to create written documentation that supports your decision. An employee can file a wrongful dismissal suit after being terminated. However, if you’ve documented past actions against the worker, including warnings, you can avoid litigation.

Try writing these notes on the same day you handed out the discipline while your memory is fresh and always date them. This documentation should never seem subjective, so write with the assumption that it will someday end up in the hands of a judge or jury. You might also consider handing out written performance reviews to employees at regular intervals to provide complete performance transparency.

If you have documentation that an employee has performed below standards or caused problems in the workplace, the chances of a lawsuit decrease.

Ignoring employment laws

Employment laws are in place to protect your employees from mistreatment. If you don’t follow or understand these laws, you could face a lawsuit in the future.

Being unaware of the law is no excuse, so make sure everyone in a position of power within your organization is understands them.

Relevant employment laws include:

• Title VII of the Civil Rights Act
• Fair Labor Standard Act
• Family and Medical Leave Act
• Americans with Disabilities Act
• Age Discrimination in Employment Act
• Equal Pay Act
• Occupational Safety and Health Act
• Pregnancy Discrimination Act
• National Labor Relations Act
• Title II of the Genetic Information Nondiscrimination Act of 2008

Each of these laws provides different protections for workers within your organization, so reading and understanding them is essential.

If you violate any of the protections outlined in these acts, you could open yourself up to a lawsuit from an employee.

Forgetting legal contracts

Whenever you deal with a third party, be it a business, investor, or individual, you should always have a legal contract in place. This contract can protect you from a lawsuit should your business relationship sour.

The contract should detail the expectations for each party in the agreement. If you fulfill your obligations, there shouldn’t be any legal challenges.

Make sure that you write the contract specifically for your agreement and don’t use generic templates. These templates could get you into trouble if you forget an essential provision.

Failing to run background checks

How well do you know your employees?

While not running background checks won’t directly result in a lawsuit, you’re responsible for your workers’ actions.

If you have an employee committing illegal or questionable acts, you could find yourself dealing with a lawsuit because of this individual. It’s best to go ahead with a thorough background check to avoid issues like this down the line.

Shunning company policies

Keeping everyone within your organization on the same page helps your business run smoothly and avoids legal problems.

Write a list of company policies and procedures, and make sure that your staff follows them when dealing with co-workers and the public. You should also have an employee handbook or manual and make it essential reading for all workers.

Having clear rules can help you avoid problems resulting from employee behavior that could lead to lawsuits.

Do you have insurance?

Even if you manage to avoid these business mistakes, things beyond your control can happen. Therefore, having the proper insurance is necessary to save your organization from financial problems resulting from a lawsuit. This insurance provides additional protection in case the unforeseen occurs.

Insurance you might need includes:

• general liability
• commercial property
• workers’ compensation
• commercial auto
• professional liability
• loss of income
• employment practices liability (EPLI)
• commercial umbrella

Avante Insurance is an independent insurance agency that works with the most reliable insurance companies in the business, providing you with the exact coverage you need. Our team will work with you to determine what insurance will suit your business, coming up with the perfect solution to protect you from lawsuits and other business pitfalls. Contact us for more information or to receive a quote.

This blog and website are made available by the publisher for educational and informational purposes only. It is not to be used as a substitute for competent insurance, legal, or tax advice from a licensed professional in your state.