Perhaps it’s no surprise in today’s tough economic times, but employment-related lawsuits against businesses are on the rise. In fact, since 2006, the number of lawsuits claiming workplace harassment (related to issues like gender, disability and age) has grown by 25 percent, according to statistics released by Bolt Insurance Agency.
You say you don’t have employees? Don’t breathe a sigh of relief just yet – your business could still be at risk. Bolt reports that one out of every three small-business owners has either been sued or been threatened with a lawsuit. And they aren’t just the “bigger” small businesses, either: More than half (57 percent) of lawsuits brought against businesses involve companies with revenues under $1 million.
How Lawsuits Cost You
Whether or not you’re actually guilty of what’s claimed in a lawsuit, being named in a lawsuit can seriously damage your business’ reputation and lead to a wide range of problems, such as difficulty getting credit or finding new customers. Of course, that’s not taking into account the costs of defending yourself, which can quickly add up. Bolt reports that out-of-pocket expenses incurred as a result of lawsuits cost small companies more than $35.6 billion per year. To compensate for the high costs of a legal defense, 74 percent of small companies that have been sued say they’ve been forced to charge more for their products or services, and 71 percent report that they’ve had to decrease hiring.
Given our litigious society and the desires of some unscrupulous people to make a quick buck at the expense of what they see as deep-pocketed small business owners, it’s unlikely that your risk of lawsuits will diminish anytime soon. How can you protect your business from a lawsuit? Here are some tips.
1. Make sure you have adequate insurance coverage. Talk to your insurance agent about your risk exposure and how to protect yourself, whether that’s an umbrella liability policy or specialized liability insurance. If your business provides professional services, if you sell consumer products or if you have access to sensitive customer data, for instance, you may need specialized coverage to protect yourself. Don’t scrimp, because you need to make sure you’ve got enough insurance to cover potential judgments should your case go to trial. According to Bolt, in consumer product liability lawsuits, juries award an average of $279,309; in commercial product liability lawsuits, the average award is $725,000; and in construction, medical or industrial liability lawsuits, the average award is over $1.25 million.
2. Minimize risk in your business. Make sure you’re following correct procedures when it comes to things like workplace safety and how your products are manufactured. You also need to make sure your hiring procedures follow the letter of the law so that you’re not perceived as discriminating against certain job applicants. Finally, develop processes for resolving issues that arise between employees so that small squabbles don’t mushroom into harassment claims. If necessary, retain an outside HR consultant to review your policies and procedures and pinpoint any potential problems.
3. Use contracts. It might sound obvious, but too many small-business owners do deals on a handshake, especially when they’re excited about a new client or eager to get started on a rush project. Don’t do anything until you’ve got a signed contract in hand and have had an attorney review it. You’ll thank me later.
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