Being a small business owner is a wild undertaking. Whether you’re opening a small retail shop or a franchise business, there will be hundreds of tasks you will have to perform while still monitoring the overall needs and growth of your business. From providing services to managing staff, and cash flow, it’s likely you come across a small business lawsuit.

Small business lawsuits are common, according to the Small Business Administration (SBA), around 52% of small businesses have to face at least one lawsuit at one point, and it influences small businesses in almost every industry. A small business lawsuit can have a significant impact on your bottom line as well as your emotional health. In order to avoid small business lawsuits, you should understand the common reasons why small businesses are sued and how to avoid them.


Copyright Infringement

The most common issues are related to the use of the intellectual property. If you use images or copy the intellectual property of another business, even unintentionally, you may have to face a lawsuit related to copyright infringement.


Discriminative questions in the hiring process can sometimes lead to costly discrimination claims. It’s not only illegal but also unsuitable to ask questions about a candidate’s ethnicity, religion, or sexual orientation. You can contact the U.S Equal Employment Opportunity Commission (EEOC) to ensure the legality of your interviewing questions to avoid any discrimination disputes.

Inappropriate Behavior

A friendly-business environment is a key to ensure your business is running smoothly and every business owner must endure it by establishing and enforcing policies for it. Incorporating such policies and taking appropriate actions can help avoid harassment and improve your work situation.

Labor Disputes

I order to avoid labor disputes, it’s crucial for small business owners to be in compliance with the labor laws. The Department of Labor (DOL) is confining on labor law defilements, and they collected a record-breaking $322 million in back wages for more than 215,000 workers last year. With the rise in labor law violations and lawsuits, the business owner should review their HR policies and employee classifications to avoid experiencing labor disputes. According to the DOL, overtime pay must be at least one and a half times a worker’s hourly rate if they exceed 40 hours of work in a week.

Personal Injuries and Property Damage

It’s the responsibility of every business owner to ensure the safety of its employees and customers. However, misfortunes can still happen in the workplace, and if you’re guilty, either the client injured itself on your property or you damage their property, the cost of personal injury and property damage can quickly add up. The best possible way to avoid such accidents is to recognize and eradicate the risks and regularly check your business workplace.


  • Business Incorporation

Business incorporation can help your personal assets from lawsuit obligations. Despite your best practices, accidents can happen. If an employee gets hurt at your workplace, you could possibly be sued and end up paying from your personal assets. If you’re an incorporated business, you get separated from your business liability. This way, you’ll only have to compensate for a potential lawsuit with your business assets.

  • Insurance Can Help

Getting your small business insured not only helps you keep off from getting sued, but also lower the financial strains of a lawsuit by separating your personal and business finances. If you are sued, your insurance protection can cover the legal fees and liability costs. Before finalizing an insurance coverage plan, do thorough research for different types of business insurance. Most businesses opt for general liability insurance aka business liability insurance that provides protection against a personal injury lawsuit at the workplace. Some opt for professional liability insurance aka errors and omissions (E&O) insurance that provides protection against negligence claims due to harm that results from faults or failure to perform. Different business has different needs, and its best to talk with an insurance broker about the insurance policy that works best for you based on your unique needs.

  • Use of Legal Contracts

Drafting legal contracts is essential when dealing with another business or individual. This applies to all since it protects your interests in case of a business lawsuit. When you draft a contract, list all the services or products you’re offering to a customer to minimize the risk of legal disagreements.

  • Keep Accurate Records

Every successful business has a standard practice of keeping accurate records around-the-clock. This way you can easily track the time and date of an agreement along with the minutes of the meeting and delivery promises. Documenting records of any communication can help businesses when a problem occurs to avoid a lawsuit. Keep in mind that having accurate records can be used as a protection in the case of a business lawsuit.

  • Workplace Policies and Procedures

Drafting workplace policies and procedures can also help safeguard your business against any potential lawsuits. Creating policies and asking your workforce to follow them properly will help protect you against potential lawsuits. You can also provide them employee operational manual so they can adhere to policies and perform their jobs better.

  • Provide Exceptional Customer Service

Keeping your customers contented with exceptional customer service can help your business succeed and stay away from lawsuits. Mistakes are accidental and can happen in your workplace, and with a trained workforce, you can prevent a potential lawsuit. You should be able to recognize when a customer is unhappy and effectively handling the situation can help deter that customer from turning to the courts to seek compensations.

The Bottom Line

Running a small business carries different types of risk. You can reduce the risks and personal liability by focusing on risk-reduction measures. Take time to gauge the potential risks your business faces and initiate appropriate measures to minimize your liability. When you’re, get help from your attorney and insurance coverage. Use all the available resources to minimize the risk and of small business lawsuits.

Small Business Financing News │ Merchant Advisors | blog
Reasons for Small Business Lawsuits And How to Avoid Them
Reasons for Small Business Lawsuits And How to Avoid Them
Looking for funding to fund your small business? The road ahead is full of twists and turns because it does require a lot of time and research to locate the best funding program that suits your business. Due to theRead more
Small businesses can get sued. Read on to learn about some common reasons for small business lawsuits and helpful tips to avoid them.
Merchant Advisors
Merchant Advisors