3 Reasons Small Businesses Get Sued

The potential for litigation is just a fact of operating an enterprise these days. Small business owners can find themselves facing lawsuits from customers, competitors, and even employees. In fact, a study released by the U.S. Chamber of Commerce’s Institute for Legal Reform found that 43 percent of small business owners reported having either been threatened with, or involved in, a civil lawsuit.

In other words, there’s nearly a 50/50 chance you could be facing legal action at some point in the course of running your business. The good news is this: being forewarned is being forearmed. With that in mind, here are some of the top reasons small business get sued.

Employee Grievances

These can range from workers feeling that they’ve been unfairly disciplined to accusations of sexual harassment and discrimination. The most common complaints include:

• Wage and salary concerns such as an illegal reduction of overtime hours or pay, docking salaries, and unlawful suspensions
• Workplace harassment or hostile work environments, including sexual harassment
• EEOC federal workplace discrimination law violations, including bias against age, disability, religion, gender, retaliation, sexual orientation, and pregnancy(all of which can come from job applicants too — even if they aren’t hired)
• Physical injuries as a result of employer negligence
• Wrongful termination and unfair discipline
• Discrimination in violation of the Immigration and Nationality Act

Customer Issues

Your customers may bring suits against you based on allegations that you failed to fulfill contracts. Customers may also sue if they sustain injuries on your premises, or if they believe your products are defective.

Among the most frequent occurrences are:

• Discrimination for a variety of reasons, including disability, sexual orientation, and ethnicity
• Bodily injuries such as slips and falls
• Harm arising from defective products manufactured, distributed, or sold
• Breach of contract from delivering late or incomplete work
• Errors or omissions in terms of work completed and information disclosed
• Theft of files and data system breaches leading to the disclosure of customer information
• Fraud resulting from misleading information or malicious actions
• Breach of confidentiality
• Failure to honor warranties

Competitor Concerns

Your competition can use lawsuits to hamstring your business, making all sorts of allegations to keep you tied up in court rather than focusing on running your business.

Examples include:

• Copyright, trademark, and patent infringement
• Theft of intellectual property
• Libel or slander
• Violation of non-compete agreements
• Tortious interference, including breach of contract and interference with a business relationship

Insuring Yourself Against Claims

One of the first things you should do when you start a business requiring you to interact with employees, customers, and competitors is acquired a good General Liability small business insurance policy. This type of insurance covers bodily injury, property damage, and advertising injury to non-employees.

Certain instances will require more specialized coverage, so you should always make it a point to review what is and isn’t included in any policy you’re considering. Other types of business insurance you’ll want to explore are Professional Liability insurance — also known as errors and omissions insurance — and workers’ compensation coverage to protect your employees.

Does your small business need insurance sometimes, but not 24/7? You can work with a company like Verifly to get liability coverage on an as-needed basis. Nowadays, you can purchase a policy for as little as one hour.

Avoiding Lawsuits

The best move is to do everything possible to avoid engaging in the above actions. Impose strict guidelines in accordance with your company’s core values. Do everything possible to indoctrinate your employees and executives with these principles and insist upon adherence to them. Provide annual training and certification programs to ensure your people have the compliance information they need — and document those efforts.

Ideally, having knowledge of the leading reasons small business get sued will enable your company to operate in a way that minimizes your risk. But for accidents and issues, you can’t foresee, there’s small business insurance.