5 Common Business Mistakes That Put You at Risk for a Lawsuit


5 Common Business Mistakes That Put You at Risk for a Lawsuit on avanteinsurance.com

Small errors can lead to big losses.

Did you know that nearly 75 percent of all lawsuits filed against companies are disputes that involve employees or former employees? And if you’re thinking that this stat is reserved for large corporations, you may be surprised to learn that almost half of those cases are actually against small companies that have 100 employees or less. If you’re a small business owner, it’s smart to get a handle on some of the common errors that these businesses make that lead them to getting sued to reduce your own risk.

1. Hiring without running background checks

When you think about the cost of a bad hire or worse, a lawsuit filed by a disgruntled employee, it only makes sense to ensure you’re doing your homework before bringing someone onboard. And while nothing is foolproof, running background checks on all potential candidates can eliminate many issues in the future. Checking on past employment, education, criminal history and verifying that each applicant is who they say they are can help identify anyone who may have some questionable things in their past.

2. Forgoing contracts

It doesn’t matter how big or small your organization is, without a written employee agreement or contract you’re setting yourself up for trouble in the future. A contract is a solid way to lay out exactly what you expect from your new team member and what they can expect from you. With this binding agreement, you can reduce the chances of any misunderstandings about your company’s policies and procedures including pay raises, time off, sick days, etc.

3. Not paying attention to laws

State and federal laws are put into place to protect you and your employees. Unfortunately, many small businesses neglect to pay attention to the laws under the false assumption that because they have so few staff members, these ordinances don’t necessarily apply to them. But the reality is that whether you have one employee or one hundred, you are required to be aware of and follow all relevant employment laws. Not doing so most definitely puts you at risk for a lawsuit.

4. Not documenting hiring/firing processes

Employee turnover is unavoidable sometimes. It happens at even the best places to work. People move, move on or you simply find that they are unable to fulfill the responsibilities of the job you hired them for. And although it’s never pleasant to fire someone, it’s important to document the termination and plan ahead each time to protect your company.

A good practice is to put everything in writing, including any issues that have led up to it, so for example, if the employee is consistently late, doesn’t show up, or neglects their responsibilities, keep a running record of all offenses before terminating them. That way, if they do decide to sue on the contention that they were unjustly fired, you have proof of what transpired in writing.

5. Inadequate insurance coverage

If your company doesn’t have the right insurance, you could be setting yourself up to foot the bill on a costly lawsuit should an unhappy employee decide to take action. The truth is, even if you follow all the rules and protocols, there will still be people who decide to sue in the hopes of getting a big payout or just to punish you for letting them go.

Luckily, Employment Practices Liability Insurance, also called EPL, offers you the ability to protect yourself against claims. So if your business is unjustly sued for discrimination, wrongful termination, harassment or any other similar issues, you can rest assured that you’re covered.

And disgruntled employees aren’t the only ones who can try to sue you. If you handle customers’ personal information, such as social security card numbers or credit card numbers, and a data breach occurs, you could be held liable. Cyber Liability Insurance protects you in the event that this information is exposed or stolen by a hacker or someone who accesses your electronic network without your permission.

Small or big, your business is your livelihood and it’s a good idea to learn from the mistakes of other companies to avoid the damage that a lawsuit can cause. If you don’t have EPL insurance or you’d like to review your business coverage, call us today at 305-648-7070.