Unfortunately, we live in a litigious society. What that says about society is for someone else to decide. But the fact of the matter is that any business can be sued at any time by an employee, customer, vendor, or just about anyone that it comes into contact with over the course of the day. The number of fact patterns that lead to lawsuits is endless, and the sad reality is there is nothing you can do to guarantee that you will never be sued. To add insult to injury, defending a lawsuit can be expensive, time consuming, and emotionally draining.
Are you ready for some good news? Many lawsuits can be prevented altogether, and those that can’t be prevented may be neutered by employing some simple best practices.
Do a good job and be professional. You are a business owner so you have specialized skills and experience. When you make a commitment to a client or customer, honor that commitment and make customer satisfaction a priority. The reality is that most people recognize that mistakes happen. When things go wrong for whatever reason, people are less likely to get adversarial if they have enjoyed working with, or doing business with, you.
Communicate. It should come as no surprise that many lawsuits arise from a simple misunderstanding. One of the best preventive measures to avoid litigation can be a non-accusatory discussion in which any disagreement or misunderstanding is explored. A simple telephone call or honest discussion can save much time and money. Note – such discussions must end immediately if a lawsuit is imminent or has been filed. At that point, discussions should be conducted by counsel.
Document everything. The best way to avoid a misunderstanding in the first instance is to document all applicable policies and terms. A well-drafted contract, employment manual, or other writing that records critical terms of an agreement or event can prevent a misunderstanding from devolving into a lawsuit. The cost of engaging an attorney to review documents such as contracts and purchase orders is nominal when compared to the expense associated with defending a single claim. Have an attorney write you a solid contract that properly limits your liability and exposure. Also, review and understand all contract terms before you sign. If you don’t understand something, ask for clarification. Similarly, when possible, discuss the decision and process of terminating an employee before doing so. You will be better prepared and can prevent pitfalls that you may not have considered.
Understand the applicable laws. One sure fire way to avoid a lawsuit is to be compliant with the law. This includes knowing what to file, when to file and where to file. Spend the time to understand the local, state, and federal laws that apply to your business. This is not as daunting a task as it might sound. There are numerous laws and regulations that apply to any business. However, today’s technology allows for efficient and convenient research. Moreover, there are many business resources available to you through your state and local governments. Your business should also have a regular legal “check up.” The law is constantly changing. The cost of a meeting or two with a trusted attorney or business advisor will pale in comparison to the costs of defending even a single lawsuit. Keep your documents and policies up to date.
Maintain your property. Injuries equal lawsuits. So … prevent accidents from happening in the first place by maintaining your property and keeping a safe and secure workplace. Remember your “premises” can extend beyond your front door and include sidewalks, parking lots, company vehicles, bathrooms, hallways, staircases. Inspect your business property regularly and repair any defective conditions. Also, enforce workplace safety rules. Unfortunately, no matter how diligent you are, accidents happen. Thus, you should consult with an insurance professional and maintain adequate levels of insurance.
Utilize your employee handbook. “Utilize” means if you have one, follow it. Have you read your own policies lately? One way of avoiding misunderstandings, claims of unfairness, disputes regarding termination, leave issues, vacation disputes, harassment claims, etc. is to have a comprehensive and up to date employment manual. If you are not utilizing an employment manual talk to your attorney about the benefit of implementing a manual that is properly tailored to your business operations.
Terminate with care. No one likes to be fired. At the moment of termination emotions can run high. Thus, you must approach the situation with professionalism. Generally, when an employee is terminated it should not come as a surprise. Good employment practices include documenting performance issues and discussing them with your employees. Before terminating an employee make sure you are following your own policies and procedures. Also, consider offering a severance amount that may diffuse the emotion of the moment.
Don’t ignore the problem. It is inevitable that you will run into a difficult client, unreasonable customer, or employee. Do not ignore the situation. Resign yourself to completing the contract or project. Keep your ego in check and remain calm. Address the situation as best you can and learn from the experience so you can avoid similar customers or clients in the future.
All potential clients are not good clients. Life is too short. The reality is that there are times when you know from the beginning that a particular person or client is going to be a problem. In such circumstances you may well be better served in the long run by declining the work.
Remember, every action has a reaction. If you are unable to amicably resolve a dispute and you conclude that you must bring a lawsuit – so be it. But, understand that after you file your lawsuit you are likely to face a counterclaim. Don’t expect that your dispute will be limited to the issue of your choice. Your opposition will try to find leverage wherever they can and that usually means that the scope of your dispute will be expanded. Thus, recognize that you and/or your business practices will be exposed to the public’s eye. As a result, you should have your house in order before voluntarily getting involved in any litigation.
Understand your risk tolerance and properly insure yourself. Insurance can provide you with a competitive edge. Litigation can be time-consuming, expensive, and frustrating. The litigation process can also impact your personal and business schedule. Insurance will not prevent you from getting sued, but it can give you peace of mind and some financial security. In many cases, insurance will cover the cost of an attorney and damages that are awarded. Talk to an insurance professional about the levels and types of insurance that are right for your business.
About the Author
Jim Timmerman is a founding partner of Timmerman, Beaulieu, Hinkle & Esworthy, LLC. Jim’s practice focuses on complex business and insurance litigation in Maryland’s federal and state courts. He also advises individuals and businesses of all sizes on general business and risk management issues. He can be contacted by phone at (410) 649-4440 or by email at firstname.lastname@example.org.