The top 5 reasons small business owners get sued

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May 14, 2018, 8:30 AM | Updated: May 18, 2018, 1:56 pm


Every business owner dreads the day his or her company goes through a time-consuming and costly lawsuit.

Although employees are legitimately wronged every day, sometimes businesses must weather frivolous lawsuits or legal actions meant to provoke a company into giving the accuser a settlement, according to the National Federation of Independent Businesses.

Prevention is key when it comes to keeping your legal fund unspent. Making sure to collect documentation and avoiding the following mistakes will prevent legal trouble in your future.

Discrimination claims during the hiring process

As a small business owner, you probably already know you can be sued if you ask questions during a job interview that might be construed as trying to ferret out whether someone has a disability, is of a certain religion or has children, among many others.

You must be careful about what you ask during job interviews because of the Americans with Disabilities Act of 1990, which “makes it unlawful for an employer to discriminate against a qualified applicant or employee with a disability,” according to the U.S. Equal Employment Opportunity Commission.

Discrimination based on the race, religion, age, physical ability, gender or socio-economic status of an applicant is illegal. Of course, any applicant you hire for a position needs to meet the educational and skill requirements, so sticking to questions about experience and professional expectations is the safe way to go.

Emotional disciplinary decisions

Making a decision to discipline an employee in the heat of a tense moment can cost you a lot more than embarrassment in the long run. Docking pay (rarely legally defensible) or suspensions are both the cause of many employee-generated lawsuits against their employers.

If you’re in a situation where you feel you need to discipline an employee for repeated violations of employee codes or workplace policies, make sure you have a solid paper trail showing the employee is knowingly breaking the rules.

Supervisors or managers not following HR best practices

Nearly everyone has heard of or experienced some type of workplace harassment. Sadly, interpersonal issues among co-workers can turn sour, and if management has not taken steps to prevent issues in the first place and addressed issues as they come up, it can be the company that pays.

Making sure that all managers and supervisors understand what harassment and a hostile work environment are is the first step in keeping employees safe, productive and happy. It’s important that all employees complete mandatory harassment training, according to the Society for Human Resource Management.

In the event that your company has provided and ensured that managers and supervisors know HR best practices and still engage in some type of harassing behavior, they’re likely to face personal lawsuits, instead of the company.

Illegal reduction of overtime hours or pay

It’s illegal to bargain with employees to provide them with more overtime hours for a smaller amount of money per hour and overtime pay need to be at least one and one-half times an employee’s regular rate of pay after 40 hours of work in a week of work, according to the U.S. Department of Labor.

Laws governing overtime pay and hours seek to protect workers from being exploited. If your company or employee is in a unique situation that warrants more overtime or complicated overtime circumstances, you should talk to a business lawyer about recommended best practices.

Copyright infringement

You wouldn’t want someone to poach your logo or photography you paid for, and you could be prosecuted for doing the same thing. Whenever you want to use an image, a person’s or a business’s name in relation your products or another piece of intellectual property, make sure to secure the rights and get permission in writing.

Preventing and getting protection from lawsuits

If you want to proactively protect your business or are already facing the threat of a lawsuit, finding an advocate who knows the nuances of business law is imperative. Small details can make a big difference when it comes to business law. Schedule an appointment with one of the expert business law attorneys at Hudspeth Business Law to keep your small business out of the tangle of costly litigation.

Attorney Donald W. Hudspeth has more than twenty years’ experience practicing corporate and business law. Before attending law school, Mr. Hudspeth held a stock broker’s license at the age of 21 and owned his own business at the age of 23. He was a business law professor at Arizona State University, West Campus, and has conducted classes and seminars for a number of higher institutions and organizations. Mr. Hudspeth has published two books on law and is the founder of the radio programs Law on the Edge and Law Talk.

Hudspeth Business Law



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