Frivolous lawsuits are an all-too-common problem for small businesses. This is because, under current laws, there is almost no risk to trial attorneys or their clients for bringing even absurd cases to court. While large companies routinely retain attorneys and have the financial means to protect themselves from frivolous lawsuits, small businesses may be left out in the cold if served with an unwarranted lawsuit. Regardless of whether there is any validity to the plaintiff’s claim, the small business owners will have to hire attorneys and will typically incur legal fees even if they win the case.
Disturbing Statistics about Frivolous Lawsuits against Small Businesses
There are two common types of frivolous lawsuits small business owners have to deal with: product or professional liability and personal injury. According to a recent survey, such unnecessary lawsuits cause financial, not to mention emotional, damage throughout the country. Some of the alarming statistics concerning small business owners in the U.S. are:
- Over 50 percent of all civil lawsuits target small businesses annually
- 75 percent fear being targeted by a frivolous lawsuit
- 90 percent settle frivolous lawsuits simply to avoid higher court costs
- Owners pay $20 million out of their own pockets to pay tort liability costs
- U.S. tort costs have increased more than the gross domestic product since 1950
- On average, those earning $1 million per year spend $20,000 of it on such lawsuits
How Can Small Business Owners Protect Themselves from Frivolous Lawsuits?
The best way for small business owners to protect themselves from frivolous lawsuits is to consult with an experienced, reputable business attorney to help them evaluate possible areas of vulnerability in their company. The attorney should assess their potential exposure in terms of:
- Employment law, including harassment, discrimination and wrongful termination
- Intellectual property (IP), protecting them from unintentional theft of IP
- Contracts management
- Electronically stored information (ESI)
- Fraud, establishing internal controls to prevent employee fraud
Beyond retaining helpful legal counsel to protect their businesses, small owners must, of course, ensure that they are taking proper precautions in terms of quality control of their own products, services, plant maintenance and staff behavior.
Insurance against Frivolous Lawsuits
If small business owners want optimal protection against frivolous lawsuits, they should look into the possibility of purchasing property or liability insurance for their company. After having an attorney examine their business practices to ensure that they are taking all possible precautions against being sued, they may want to consider buying an insurance policy their lawyer deems appropriate.