Lawsuits and Litigation: 5 Common Legal Issues Facing Small Businesses
By Sara Bankert, Director of Small Business/BOP
Small business owners are often so busy with day-to-day operations, it can be easy for them to lose sight of key issues that could turn into costly legal claims. Here, we’ll look at five of the most common issues that your small to midsized business owner clients may encounter that could result in a costly lawsuit.
“ ... companies with one to 10 employees have a workplace incident rate of 1.1. For businesses with 11 to 49 employees, the number increases to 2.3, and for those with 50 to 249 employees, the rate is 3.5.”
– U.S. Bureau of Labor Statistics
1. Unresolved Employee Grievances
Employees who feel their employer has treated them unfairly and has not tried to resolve an ongoing workplace issue might end up bringing a lawsuit. Common employee complaints that can lead to costly claims involve situations such as wrongful termination, discrimination, unfair pay, and harassment.
2. Workplace Safety Issues
Lawsuits related to workplace illnesses, injuries or deaths aren’t limited to large operations. Unfortunately, regardless of how careful an organization is, workplace accidents can happen — even in small businesses with fewer than 10 employees. According to the U.S. Bureau of Labor Statistics, companies with one to 10 employees have a workplace incident rate of 1.1. For businesses with 11 to 49 employees, the number increases to 2.3, and for those with 50 to 249 employees, the rate is 3.5.
3. Improper Licensing
Every business is required to obtain proper licensing to operate. The type of licensing depends on the type of business and the goods and services it provides, as well as its size and location. Failure to comply with licensing requirements set forth by local, state and federal governments could, at the very least, result in fines and fees for the business – or worse, result in a costly lawsuit that financially devastates a business to the point of bankruptcy. If your business clients aren’t sure of their licensing requirements, they should consult with a small-business attorney.
Even the best of business partnerships can go south. If issues arise, a business could find itself in court arguing about a partnership breach, noncompete/disclosure violations or other disagreements. For some businesses, it can be hard to imagine a partnership dispute escalating to the point of a lawsuit, but it occurs more often than you might think.
4. Breach of Contract Violations
From nonpayment claims to noncompliance issues, breach of contract disputes are among the most common legal lawsuits impacting nearly every aspect of a small business. Today, the four types of contract breaches (written or oral) that are most common to small businesses are:
- Material breaches occur when one party fails to perform its obligations or deliver said obligations on time.
- Minor breaches happen when a party follows through, but only in part, with what is outlined in a contract.
- Anticipatory breaches, while not an actual violation, happen when a party states it has decided not to fulfill its part of a contract.
- Actual breaches occur when the party in question has committed the violation but remains reluctant/refuses to respect the terms of the contract.
5. Partnership Disputes
Even the best of business partnerships can go south. If issues arise, a business could find itself in court arguing about a partnership breach, noncompete/disclosure violations or other disagreements. For some businesses, it can be hard to imagine a partnership dispute escalating to the point of a lawsuit, but it occurs more often than you might think.
Today, every small business could find itself facing a financially challenging legal issue. For this reason, it is important for your small-business clients to understand the importance of securing employment practices liability insurance as well as coverage for workers’ compensation to protect against these and other legal challenges.
Sara Bankert is Director of Small Business/BOP of Builders & Tradesmen's Insurance Services, Inc., an Amynta Group Company.
Builders & Tradesmen’s Insurance Services Inc.
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