When you began exploring the idea of a small business, or when you started one, you likely had big dreams for it. You probably imagined making a comfortable living. You envisioned helping people with the product or service you offer. Perhaps you even thought about the legacy it might be for your family after you are gone. Most people do not think about the potential for business lawsuits that might take away all those dreams. According to SCORE, those lawsuits can cost small businesses between $3,000 and $150,000 per lawsuit. Additionally, a SCORE poll indicated that 43% of small business owners have either been involved in or threatened with a lawsuit.
Protecting your business against the nine most common lawsuits small businesses can face can be a significant step toward avoiding this costly litigation. An experienced business litigation attorney at Clearwater Business Law may be able to assist you in protecting your Pinellas County, Florida, business. Call (727) 502-6874 to schedule a consultation and learn more about protecting your small business against lawsuits.
Breach of Contract
In the simplest terms, breach of contract occurs when one party breaks their promise to a second party. In legal terms, it means that one party made an offer, the other party accepted the offer, and then one of the parties failed to do what they agreed to do. Contract terms lay out the expectations and responsibilities for both parties and form legally-binding agreements, so when one party fails to follow through on what they agreed to do, it can lead to a business lawsuit.
Breach of contract can occur with any contract. The most common instances include when a company is sold or purchased, when a business merger does not go well, when services are not provided, vendors are not paid, or products are not delivered. The easiest way to avoid this lawsuit is to fulfill all contract terms. Additionally, businesses should avoid agreeing to terms they know they are unable or unwilling to fulfill.
Business Torts
Business torts are wrongful acts by or against a business that result in damages for the business. There are three types of torts: intentional, negligent, and strict liability. Intentional torts are those that are done on purpose. They include invasion of privacy, trespassing, fraud, and conversion.
A negligent tort means that the person or business did not act as a reasonable, prudent person would have in the same circumstances. These can include acts of poor judgment or negligent misrepresentations. Strict liability torts mean the act was so dangerous that there is no need to find fault. The fact that the act occurred is enough to hold the business responsible. This includes product liability lawsuits, but it can also include acts such as the use of explosives or improper storage of hazardous waste.
Wage Law Violations
Wage law violations are the third most common business lawsuit in Florida. They can occur for many reasons, including not paying minimum wage based on the Fair Labor Standards Act (FLSA) or state minimum wage law, according to the Department of Labor, refusing to pay overtime to employees who worked more than 40 hours in a workweek, requiring employees to work during unpaid time off, such as lunch break or to be “on call,” or misclassifying employees.
Depending on the circumstances, these lawsuits may be filed at the local, state, or federal level. Additionally, businesses that face these lawsuits may also face fines from government agencies for violating the law.
Discrimination, Harassment, and Wrongful Termination
Employment lawsuits can include allegations of discrimination, harassment, retaliation, or wrongful termination. Florida is an at-will state, meaning an employer can hire, fire, promote, discipline, or demote any employee for any reason except illegal reasons, such as discrimination against any protected classes. Employees are protected by federal laws, such as Title VII of the Civil Rights Act of 1964, which protects against discrimination based on color, race, sex, national origin, or religion. If you are facing an employment lawsuit, an experienced business litigation attorney with Clearwater Business Law may be able to assist you.
In addition to employees filing employment-related lawsuits, customers, vendors, and others may file discrimination or harassment lawsuits as well. These lawsuits may be based on the same protected characteristics as an employment lawsuit. They may also be based on violations of the Americans with Disabilities Act, such as denying a person with a disability access to a restaurant or store because of their disability.
Personal Injury Claims
Personal injury claims arise when someone is injured by someone else’s negligence. They can occur between private parties as well as between a business and a private party. These types of business lawsuits include slip-and-fall accidents on the business’s premises or car accidents that occur in company vehicles. Employers can also be held vicariously liable for the actions of their employees, which means if an employee is negligent, the employer may be liable even if they did not know about the employee’s negligence.
Intellectual Property Disputes
Intellectual property can be one of a business’s most valuable assets. Intellectual property can include trademarks, copyrights, patents for inventions, and trade secrets such as special processes, recipes, or formulas. Some forms of intellectual property, such as trademarks, copyrights, and patents, require the owner to file registration paperwork with the United States Patent and Trademark Office (USPTO) or United States Copyright Office. Trade secrets do not necessarily have those protections, as registering them with an agency would disclose the proprietary information.
Whether the information is a registered trademark, copyright, patent, or an unregistered trade secret, the intellectual property owner has several rights, including the right to prevent others from using it. Business lawsuits can result when one business does not respect another’s intellectual property, such as infringing on their trademark or stealing their trade secrets.
Partner and Shareholder Disputes
In a sole proprietorship, the business owner can make decisions independently. These decisions may require agreements between partners or shareholders in jointly owned businesses. Partner and shareholder disputes are common in companies with multiple owners. The owners may disagree about how the business should be run, who is responsible for which responsibilities within the business, or how earnings should be disbursed among the shareholders or partners.
While these disputes may be resolved between the individuals involved, this is not always true. When the partners or shareholders cannot agree, a dispute may become a lawsuit. In some cases, it may even lead to the business dissolving.
Workplace Injuries
The State of Florida requires most employers to provide workers’ compensation insurance for their employees. This coverage is typically the only remedy an injured worker has if they are injured in the workplace. However, if an employer does not have the required coverage or fails to file the claim properly, the injured employee may be able to file a lawsuit against the employer.
Additionally, if the employee for one business is hurt while working on a second business’s property, even though their injury would be covered by their employer’s workers’ compensation insurance, they can still file a premises liability lawsuit against the second business as a third-party claim. This is why frequent inspections of a business’s property are essential.
Legal and Regulatory Compliance Issues
Another of the more common small business lawsuits involves legal and regulatory compliance issues. These issues can include data protection, privacy regulations, and cybersecurity laws. These lawsuits can come from employees, customers, or other businesses. They can be very complex and businesses may want to consult with an attorney before proceeding with an answer before proceeding.
Tips to Protect Yourself and Your Small Business Against Litigation
While there may always be a risk that a small business will face business lawsuits, there are things that business owners can do to protect themselves and their businesses against litigation. Taking these steps can reduce the risk of litigation, and if litigation does occur, it can protect the owner’s personal assets and offer other protections.
Choose the Right Business Structure
Choosing the wrong business structure may not result in a business lawsuit, but it can cost a business owner their personal assets if there is a lawsuit. Some business structures may leave personal assets vulnerable in business lawsuits, while other structures offer personal asset protection. Whether an individual is starting a business as a sole proprietor or with one or more partners or shareholders, they should consider speaking with a business law attorney to learn which business structure may afford them the most protection for their personal assets.
Follow All Applicable Local, State, and Federal Laws
While it seems like a self-explanatory tip and one that any business owner would follow, many business owners violate a local, state, or federal law that they did not know existed. Business owners should take the time to explore and research the laws applicable to their industry on the local, state, and federal levels to ensure that they follow them. An attorney may also be able to assist business owners with understanding the laws they need to comply with to avoid legal trouble.
Keep Accurate and Updated Records
Business owners should keep accurate and updated records, from payroll timekeeping to receipts for payments to vendors. These records can prove helpful in employment lawsuits, breach of contract lawsuits, and many other potential lawsuits. Original documents are ideal, but for businesses that want to be sustainable or do not have a lot of storage space, uploading copies for digital storage may be sufficient. Digital storage can also serve as backup in case original paperwork is lost to a fire, flood, or other unavoidable catastrophe.
Put Things in Writing and Fulfill All Obligations
There may have been a time when business could be done with a handshake and a smile, but those days are long gone. Today, business owners should ensure they put all agreements in writing. Even if it is not an actual contract, if the parties write down what they have agreed to and both sign it, it can serve as evidence of the agreement. Business owners should also ensure that they fulfill all obligations they agreed to. If something prevents them from fulfilling a commitment, they should notify the other party as soon as possible, and if possible, offer an alternative or other arrangement. By providing an alternative or other arrangement, the business owner may be able to keep the other party from feeling frustrated enough to file a lawsuit.
Develop and Implement Clear Company Policies and Procedures
Many employment lawsuits may be avoided with clear company policies and procedures regarding discrimination, harassment (including sexual harassment), wages and benefits, and other relevant information that employees need to know. These policies and procedures should include details regarding how to file a complaint, how complaints are handled, and any disciplinary actions that may result from those complaints.
Regularly Inspect Property for Hazards and Correct Any Found
Personal injury and premises liability lawsuits often occur when there are uncorrected hazards on the business’s property. Sometimes these hazards have only just appeared, and the business owner is not yet aware, but in some cases, business owners have not paid attention, and hazards have existed for days, weeks, or months before an injury. Business owners can reduce the chances of facing this type of business lawsuit by regularly inspecting the property for potholes or tripping hazards, loose banisters or stair treads, wet floors, objects that may fall, and other hazards. When the business owner finds a hazard, they should immediately correct it when possible, and use clear signage and verbal warnings to ensure others entering the premises are aware of the hazards when they cannot immediately correct it.
Respond Promptly to Employee Complaints
Whether an employee complains that their paycheck is incorrect or that someone is harassing them, employers should listen carefully to each complaint and respond promptly. If the employer needs time to investigate or look into other matters before offering a specific response to the complaint, they should at least acknowledge the complaint and try to give the employee an idea of when they can expect a response.
Understand and Respect Intellectual Property Rights
Intellectual property can be the heart of some businesses, with trade secrets, copyrights, or patents forming the business’s foundation. Business owners should ensure that they understand and respect the rights and responsibilities of intellectual property so that they do not infringe on another business’s rights and can properly protect and defend their own intellectual property against others.
Obtain All Necessary Insurance Products to Protect the Business
Businesses often need multiple insurance products to protect various aspects of their business. New business owners, particularly those who have never owned a business before, may not know all the products they need. Those thinking of starting a business or who have recently started one may want to confer with a business law attorney and a commercial insurance agent to learn more about which insurance products they need to protect their business fully and what coverage amounts they need.
How a Business Law Attorney May Be Able to Assist You
As a business owner, the last thing you want is to lose your business because you face a lawsuit. Unfortunately, you may face at least one lawsuit during your business’s lifetime. However, you can take steps today to have a strong defense against business lawsuits. A business litigation attorney at Clearwater Business Law may also be able to assist you in ensuring that you are prepared for a lawsuit, including helping you comply with the appropriate laws and defending you in a lawsuit. Call (727) 502-6874 to schedule a consultation to learn more about how to protect your Pinellas County business.