WELCOME to Richard W. Greenbaum’s Business Law Blog. Our objective is education. We hope to give you some pertinent information to help you as you plan and launch or as you are running your small or medium sized business. There are many areas of legal concern that we can guide you through.
This month’s topic — avoiding a lawsuit — is relevant to all businesses. We hope this blog post will save you from being sued OR may reduce your losses if you are.
If you have not been sued yourself, chances are that you know someone who has. It can be devastating both financially and psychologically.
How Bad Is It?
These numbers from Statisticbrain.com from September 2016 show that civil lawsuits (i.e. not criminal lawsuits) cost the United States $239 billion annually. (For reference: California’s 2016-17 state budget was $170.9 billion.) Here are some daunting figures:
- The average compensation payout for injury lawsuits in 2016: $60,000.
- The average in punitive damage lawsuit payouts: $50,000.
- California recorded 40% of all the ADA (American Disabilities Act) lawsuits in the entire United States.
And one more jarring statistic: California had more bankruptcies than any other state in the union with 110,800 in 2016.
What’s the Answer?
As a small business owner, there is no guarantee against being sued. However, you can greatly reduce your chances of 1) being sued, and 2) going bankrupt because of it by following these steps.
Before You Start Your Business
- Have a sound start-up team in place.
As part of your start-up team for your small business, you might want a business consultant, an accountant, a banker, and a business attorney. A good business lawyer will help with leases, contracts, trademark issues, copyrights, fictitious names, and then make sure you’re in compliance with the latest state and local laws.
- Choose the best business structure.
LLCs and S Corporations provide asset protection. These types of business organizations will not specifically preclude your being sued, but they provide personal protection. Sole proprietorships do not protect your assets.
- Purchase the proper insurance coverage.
Depending on the nature of the business, liability insurance, errors and omissions, various forms of specific business insurance will help. Again, this will not protect against a lawsuit being filed, but it will shift defense costs and payment of settlement or judgment to the insurer. Your start-up team’s business attorney can advise you on what you need before the insurance agent enters the scene, and will review the policies to make sure they’re correct before you’re locked in.
If You’re Already in Business
- Review contracts annually.
Determine what new contracts are needed, what should be eliminated, revised, renewed, or not renewed. Good contract attorneys can save you money by tossing out old contracts and writing new ones to your advantage or that represent current law.
- Ensure that proper employee policies are in effect.
Employee handbooks, employment contracts, employer policies, and independent contractor agreements need to be kept up to date with the current state laws.
- Insist on employee compliance with company policies.
These include issues such as dealing with customers, clients, vendors, etc. and work hours, breaks, uniforms, mobile phone use and the like. Be sure to document, document, document when problems arise.
- Make a good, safe product in a nontoxic, healthy workplace environment.
- Keep your word.
Honor your promises to the marketplace, to your employees, and stakeholders.
- Stay current with changing laws.
Many state legislatures vote in new laws continuously. Make sure you’re compliant. Your business attorney will help with this if you’re busy running your business.
- Be a nice, respectful, and caring human being.
It’s amazing how many people sue a company or person because they were treated poorly.
Knowing the law is a full time job. Organizations and their owners can lose everything if they’re not careful. Small and medium sized businesses can rarely afford a legal department, but they should take advantage of outside general counsel services to avoid being sued. It’s almost like insurance. You cannot prevent accidents (or lawsuits) from happening, but you can reduce your losses, and sometimes prevent them by proper planning, and regular meetings with your advisors.
About the firm–Richard W. Greenbaum owns Richard W. Greenbaum, PC. He has been providing legal counsel and representation to business clients throughout Southern California including Long Beach, Seal Beach, Torrance and the South Bay for over 25 years. He can be reached here.