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What to Do If Your Small Business Gets Sued

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Businesses get sued all the time, and sometimes these cases make the news. For example, in 1998, several tobacco companies, including Philip Morris and R.J. Reynolds agreed to a $206 billion settlement that was intended to cover the costs of illnesses related to smoking.

More recently, in 2016, the BP company had to pay $20 billion in a settlement because of environmental damage from an oil spill in the Gulf of Mexico.

While these big-name lawsuits certainly happen, not every business is a massive corporation. Nonetheless, that doesn’t mean they’re protected from lawsuits.

If you’re a small-business owner, even though the involved dollar amount may be lower, a lawsuit can actually be more damaging.

You have fewer resources to deal with something like this.

With that in mind, the following are key things to know if your small business gets sued.

Common Reasons Small Businesses Get Sued

Around 53% of small businesses are involved in at least one lawsuit, according to the Small Business Administration.

There’s always a threat of litigation. Moreover, if your small business is sued it’s financially damaging, and it also affects your brand and reputation.

Some of the most common reasons for a small business to get sued include:

  • Intellectual property issues: Perhaps, for example, you unknowingly infringed on someone’s copyrighted material.
  • Discrimination: This might be accidental. For example, there are certain questions that are illegal to ask during the hiring process that you might not even be aware of if you’re a small business owner. It’s important to know the laws surrounding employment to protect yourself and your business.
  • Harassment: Again, this can be like discrimination. You may not know what legally constitutes harassment.
  • Wages issues: Yet again, this goes back to labor laws. You need to have an understanding of how they have the potential to affect your business. For example, if you’re not paying overtime, you could be sued.
  • Injuries: Workers’ compensation insurance should protect you if your employees are hurt at work, but what about your clients? Slip and fall accidents are a common example of a reason you might get sued.

Protect Your Business by Taking the Initiative

The best things you can do to protect your business are proactive.

For example, work with an attorney who will help you understand things like labor law and intellectual property. Then you can put in place HR practices that are lawful.

Having the appropriate insurance is also an important component of protecting your small business.

This includes general liability, workers’ compensation, and professional liability coverage if you advise clients.

There’s also coverage called employment practices liability insurance. This type of coverage protects your business against labor-related claims like discrimination, wrongful termination, or harassment.

Even with insurance and your best efforts, however, you could still face a lawsuit.


Get to Know Your State’s Business Laws

Whether it’s before or after you’re actually sued, you need to familiarize yourself with your state’s business laws. There’s never a time when it’s too late to do that.

The knowledge that you gain from doing your own research is what’s going to help you stay out of future trouble and know what direction to go in as far as dealing with your current lawsuit.

It’s also a good time to go over your business insurance policies and coverage. You’ll want to know what coverage you have and potentially what you don’t have.

Learn the Difference Between a Claim and a Lawsuit

Something to be aware of is the difference between a claim and a lawsuit.

There are similarities, but also distinctions.

A claim involves insurance companies. If an insurance company is involved and they don’t work out an agreement that the parties think is acceptable, then it might lead to a lawsuit.

A lawsuit is a formal legal proceeding. If the parties can’t agree to a settlement, a lawsuit may end up in court.

Contact Your Lawyer (or Hire One)

You should call your lawyer right away if your business is facing a lawsuit. If you don’t have an attorney, now is the time to get one.

Your attorney will be able to provide you more information about what to expect throughout the process.

Then, if it’s relevant, your second call after your attorney should be your insurance company.

Do not try to contact the person who is suing your business, regardless of your relationship with them. It’s best to have any and all communication go through your attorney.

If you have no idea who to hire as a lawyer, talk to other business owners you know and get referrals.

Most attorneys will do a free consultation. Some might charge a small flat fee.

You might talk to several attorneys before you decide on one who’s best for your situation.

Get Organized Before You Get Sued

When you work with an attorney for any reason, you need to choose someone you feel comfortable with. You’re going to have to be totally honest with this person and share any information you know. Lying or holding back information is only going to create problems for you.

From there, start to get organized.

Your attorney will let you know what records he or she might need to help your case.


Here’s What Not to Do If Your Business Is Getting Sued

If your business is being sued, the steps above are things you should do. But there are also things you shouldn’t do.

First, as was mentioned, don’t contact the person or the entity suing you directly. This can cause you to lose your case.

If your business is sued, don’t ignore it. This can lead to an automatic judgment that’s entered against your business.

Also, don’t let the lawsuit consume you to the point that you’re not running your business. As hard as it is, you need to let your lawyer deal with most of the lawsuit while you focus on the day-to-day of your business.

Focus on moving forward, minimizing future liability, and getting through this bump in the road. Owning a business is full of problems, but it is also rewarding. Just remember that even if you’re facing a challenging legal situation.

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