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15 Ways to Protect Your Business from a Lawsuit

On Behalf of | May 4, 2023 | Business And Corporate Law

  • Find a high-quality business insurance policy that has adequate coverage for lawsuits.
  • Employ a skilled attorney with substantial experience working with businesses in your industry.
  • Keep detailed and accurate records so you always have proof to support your assertions.
  • Structure your business so personal and business expenses and liabilities are clearly separate.
  • Ensure your business lives up to its obligations for any deals it makes.
  • Implement legally sound hiring practices and treat potential employees with respect and dignity.
  • Create strong policies dictating how the business should treat employees and how employees should treat each other.
  • Implement training programs to ensure all employees are up to date on policies and procedures.
  • Create firm guidelines dictating when and how employees are terminated.
  • Focus on safety in all things. Sell safe products, keep all premises safe, ensure all company vehicles are operated safely, and provide a safe work environment.
  • Implement effective data protection policies and have the infrastructure to back the policies up.
  • Ensure all contractual relationships and deals are in writing and accessible. Handshakes provide less protection than written contracts.
  • Be honest and truthful in all your business dealings.
  • Run all decisions through the proper channels. Corporations with shareholders must be particularly careful to make decisions correctly and keep shareholders informed.
  • Follow all local, state, and federal laws and regulations.

Litigation can be a life or death issue for a business. Some businesses can avoid a lawsuit for their entire existence, but ending up on the losing side of just one can close a business down for good. The best option for companies everywhere is to protect themselves from lawsuits before they happen.

The experienced business attorneys at Batson Nolan PLC know how to protect your business from a lawsuit. Our firm aims to develop a collaborative partnership with all our clients to help them mitigate risk, advance their goals, and protect their rights. Our team prioritizes efficiency and offers unparalleled legal counsel to our clients. Contact us today and schedule a consultation.

Understanding the Risks

The risks associated with lawsuits can be immense. Even when a company wins the case, litigation can drain funds that would be better spent elsewhere. Losing a major lawsuit is an existential risk for many companies.

How Does a Lawsuit Affect a Company?

Being the target of a lawsuit can damage a business’s reputation, brand, value, and profits. The mere existence of a lawsuit can bring the company bad press, regardless of the strength of the case against them. Unfortunately, the concept of innocent until proven guilty doesn’t apply to public opinion. Many individuals do not dig any deeper than a bad headline. This bad press can tarnish a company’s reputation and detract from its brand. The negative spiral can continue lowering the company’s value, damaging industry relationships, and reducing its customer base.

Further, litigation is often expensive. Tasks such as discovery, hiring expert witnesses, court appearances, and lawyer’s fees cost a significant amount of money. These costs drain a company’s coffers and prevent them from investing in the future. Additionally, lawsuits can cause a distraction for all the employees, which lessens productivity and profits. Distractions reduce efficiency and prevent employees from putting all of their focus on the core purpose of the business. They can also be a significant source of stress for employees, adding to burnout and declining mental health.

If a company settles a lawsuit, the costs can be almost as bad as losing outright. Significant settlements, such as the one reached by Fox News with Dominion, can lead to reputational harm, big shake-ups within the company, and the loss of valuable employees—and this is all in addition to the actual monetary costs.

What Happens When a Business Loses a Lawsuit?

Beyond the cost of simply engaging in a lawsuit, there is always the potential that a company will lose. The costs of losing a lawsuit can go far beyond the large monetary sums at stake. Some large companies can weather the storm and survive. However, many cannot survive such upheaval.

Personal Risks

Business owners might also face personal liability if their business is subject to a lawsuit. In most cases, if your business is set up as a general partnership or sole proprietorship, you can be on the hook for your company’s liabilities. Corporations and LLCs can provide some protection from lawsuits, but this protection is not always guaranteed.

Steps to Protect Your Business

Knowing how to protect your small business from a lawsuit is a critical aspect of running a successful enterprise. There are many steps that companies should take to protect themselves from lawsuits. Nothing can guarantee lawsuit immunity, but these strategies can minimize risk. They can also put a company in a better position to quickly dispose of a lawsuit if one arises.

1. Buy Business Insurance

First and foremost, a comprehensive business insurance plan that provides strong liability protections can be a lifesaver. These plans can protect your business from suffering significant financial losses, even if it is on the losing end of a lawsuit. However, insurance plans have limits. It is critical to fully understand a liability plan and know exactly where the boundaries are. An experienced business attorney can help your business buy the proper coverage.

2. Hire Skilled Legal Counsel

Developing an ongoing relationship with an experienced business attorney can pay huge dividends in the long run. A skilled lawyer can help you create effective plans and procedures to mitigate your business’s risk of facing a lawsuit. They can also put your company in an excellent position to win quickly if a case is unavoidable. Further, an attorney will keep you updated on the latest legal developments concerning your industry. This advice will help you avoid any new and unexpected risks.

3. Keep Detailed Records

Maintaining detailed records of every business dealing and transaction can help a company prove its case in court. Solid recordkeeping also gives a company an advantage during any pretrial settlement negotiations.

4. Structure Your Business Correctly

Choosing the right structure for your business can protect you from being personally on the hook for your company’s legal liabilities. Business structures such as limited liability companies (LLCs), limited liability partnerships (LLPs), and corporations protect their owners from personal liability for company obligations.

5. Perform Your End of a Bargain

Contract disputes are a significant source of business litigation. Sometimes companies engage in these disputes over legitimate disagreements concerning what is in a contract. Other times, one party is clearly not holding up their end of the bargain. Making sure your company does everything it agrees to do can help prevent these lawsuits and bolster a business’s reputation.

6. Implement Sound Hiring Practices

Hiring practices are another source of business litigation. Discriminating against applicants during the hiring process is illegal. Even perceived instances of discrimination can lead to a lawsuit. Implementing a sound hiring process that accounts for local, state, and federal laws can help prevent these lawsuits.

7. Create Strong HR Policies

It is risky to assume that an employee is unaware of their rights. Companies must protect all of their employees’ legal rights, or they face a significant litigation risk. Creating an employee handbook that explicitly details employee rights and company policies can go a long way toward preventing lawsuits. Medium and large-sized companies usually also need an entire HR department.

8. Implement Training Programs

Once HR policies are in place, training programs to inform employees of their rights and responsibilities can help ensure employees follow the rules and do not engage in legally risky behavior.

9. Use Standard Practices for Terminations

Improper terminations can lead to large expenses for a business. In most cases, all firings should be handled based on standard policies that are laid out in an employee handbook. These policies should give notice of what the company expects of employees. Maintaining detailed records of employee performance and terminations is also an excellent practice.

10. Safety Safety Safety

Unsafe practices lead to extreme litigation risks from a variety of sources. For example, maintaining unsafe business premises can lead to personal injury lawsuits from customers and employees. Dangerous working conditions can lead to injuries that reduce employee productivity and cause lawsuits. Hazardous products lead to product liability claims. A focus on safety in all things is paramount.

11. Implement Data Protection Policies

In the digital age, data protection is more critical than ever. In addition to other risks, poor cyber security and privacy practices can lead to expensive litigation. Protect the data of your customers, suppliers, employees, and business by implementing proactive data protection strategies.

12. Keep All Contracts in Writing

Written contracts give you evidence to point to if a dispute arises in connection with a business relationship. Often, simply pointing to the language in an agreement can be enough to stop a lawsuit before it happens. A written contract can be your best evidence when a lawsuit is unavoidable.

13. Be Honest

Fraud and deceit lead to many business lawsuits. This is unfortunate as cases based on dishonesty are entirely avoidable, and it is particularly challenging to defend dishonest business practices in court. Honesty is truly the best policy in business if you wish to avoid the expense and stress of lawsuits.

14. Use Proper Decision-Making Procedures

Making decisions through the proper channels is an essential component of avoiding lawsuits. Doing so is of particular concern for corporations with shareholders. All decisions should be made according to any company charter, shareholder agreement, or other corporate decision-making rules and regulations.

15. Follow the Law

A commitment to following the law should go without saying. Unfortunately, many companies open themselves up to lawsuits by cutting corners and ignoring rules and regulations. If you are unsure whether an action is legal, consult an experienced business lawyer.

Tips for Managing a Lawsuit

If your business faces a lawsuit, there are actions you can take to minimize the damage.

First, respond to any lawsuit in a timely and professional manner. Avoid emotional responses directed toward whoever filed the lawsuit, as they will only hurt your position. And it is highly advisable to consult an experienced business litigation attorney while formulating your reply.

Second, fully cooperate with your legal counsel. Your lawyers are legally bound to further your best interests. Be entirely truthful with them even if you think some facts might cut against your case. It is also critical to listen to their advice.

Third, it is often best to maintain open and honest communication with employees, customers, and any company stakeholders. Timely communication can help avoid reputational harm and improve your bargaining position.

Frequently Asked Questions

How Do I Protect Myself As a Business Owner?

There are several steps any business owner should take to protect themselves. To start, they should ensure their business has adequate liability insurance. Business owners should also structure their businesses to shield themselves from personal liability and separate their business and personal transactions. Finally, regularly consulting with a lawyer to assess a company’s legal risks is essential.

How Often Do Small Businesses Get Sued?

Due to data gathering limitations, it is impossible to know how many small businesses get sued yearly. When it comes to companies overall, the statistics are surprisingly high. According to the Norton Rose Fullbright 2023 Annual Litigation Trends Survey, 65% of responding businesses experienced employment litigation, 54% went through contract litigation, and 48% went through regulatory litigation. Further, 45% of respondents expected litigation rates to increase next year. These numbers suggest small businesses face a significant risk of litigation.

What Businesses Get Sued the Most?

Different industries face varying forms of litigation risk. However, it is difficult to pinpoint the businesses that face the greatest risk. In general, companies that fail to implement effective risk mitigation strategies in any industry likely face a greater risk of litigation.

Work with Batson Nolan PLC to Protect Your Business from Lawsuits

At Batson Nolan, we understand the importance of protecting your business from lawsuits. We will work collaboratively with your company to implement proactive steps that reduce the risks associated with business litigation. Our experienced attorneys share a commitment to remaining on the cutting edge of business litigation and know what risks to look out for. Batson Nolan has a reputation for providing exemplary legal representation to our business clients. Contact us today.