Why Businesses Get Sued
Starting a business comes with its fair share of challenges, including the potential for legal troubles. Understanding the common reasons why businesses face lawsuits can help mitigate these risks.
In this business insurance guide, we’ll review the top seven reasons why businesses get sued and offer actionable advice to help avoid these pitfalls.
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7 Reasons Why Businesses Get Sued
We’ve compiled the top seven reasons businesses often find themselves on the receiving end of a lawsuit.
We also provide practical advice on how to circumvent these risks, ensuring you’re well-equipped to protect your business.
1. Employment Law Violations
Employment laws are designed to protect workers, but they can be a minefield for businesses, especially for those just starting. Violations can include failing to pay the correct wages, discriminating against employees, or wrongfully terminating an employee.
- Have a clear and comprehensive employment policy. Regularly review and update it to comply with current laws. Consider hiring a human resources professional or consultant to help.
2. Product Liability
If your business sells a product, there’s a risk that the product could be defective and cause harm. This could result in a product liability lawsuit.
- Conduct regular safety audits on your products. Consider purchasing product liability insurance to protect against potential lawsuits.
3. Contract Disputes
Contracts are the lifeblood of business, but disputes can arise when one party feels that the agreement has been breached.
- Always have contracts reviewed by a legal professional before signing. Ensure all parties fully understand the terms before agreeing to them.
4. Trademark Infringement
Using another business’s trademark without permission can lead to a lawsuit. This also applies to logos, slogans, and anything else that could confuse customers about who they’re doing business with.
- Conduct thorough trademark searches before launching your business, product, or service. If in doubt, seek legal advice.
5. Copyright Infringement
Using another business’s copyrighted material without permission is illegal and can lead to significant legal trouble.
- Understand copyright laws and avoid using copyrighted material without explicit permission. This includes photos, music, and text.
6. Defamation
Defamation occurs when false statements are made about another business, damaging its reputation.
- Always speak truthfully about competitors. Avoid making any statements that you cannot back up with facts.
7. Personal Injury
If someone is injured as a result of your business operations, you could be held responsible.
- Regularly review safety procedures, provide necessary training to employees, and ensure your business premises are safe for both employees and customers.
Starting a business is an exciting journey, but it’s crucial to understand potential legal pitfalls. By staying informed and taking preventative measures, you can greatly reduce your risk of facing a lawsuit. Remember, when in doubt, consult an expert.
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FAQs
The amount of business insurance you need depends on the type of small business you operate. The average cost of business insurance typically ranges between $700 and $3,800 per year.
There are various amounts of business insurance policies. Some of the coverages are general liability insurance, business owner’s policy, business interruption coverage, property insurance, and commercial auto insurance.
Employment law violations can range from failing to pay overtime to discriminating against employees based on race, gender, age, or other protected characteristics.
Other examples might include failing to provide a safe workplace, not giving employees legally mandated breaks, or terminating an employee for unlawful reasons, such as retaliation for reporting unsafe conditions.
Reducing product liability risk begins with stringent quality control processes to ensure your products are safe and meet all regulatory standards. Regular product safety audits and inspections can help detect potential issues early.
Additionally, clear and thorough instructions and warnings can minimize misuse of the product. Finally, consider purchasing product liability insurance as a financial safeguard.
Breach of contract means one party fails to fulfill their obligations under the contract. This could include not delivering goods or services as promised, not paying on time, or not meeting quality standards specified in the contract.
If a breach occurs, the other party may sue for damages or to enforce the terms of the contract.
To avoid trademark infringement, conduct a comprehensive search to ensure your business name, logo, or slogan isn’t already being used by another company.
Once you’ve established your trademark, monitor the market to ensure others aren’t infringing on your rights. If you’re unsure, consult with an attorney specializing in intellectual property law.
Preventing copyright infringement starts with understanding copyright laws. Always seek permission before using someone else’s copyrighted work, whether it’s a photograph, a piece of writing, music, or any other form of creative expression.
If you’re unsure if something is copyrighted or if you need permission to use it, consult with a legal professional.
In a business context, defamation occurs when a false statement is publicly made about a business, causing harm to its reputation. This could be a false negative review, a competitor making untrue claims about the business’s products or services, or false rumors spread about the business’s financial health.
Regular safety audits can help identify potential hazards that could lead to injuries. Provide training to employees about safe practices and procedures, and ensure all equipment is properly maintained.
If customers visit your premises, ensure walkways are clear, signage is appropriate, and potential hazards are addressed promptly. It’s also wise to have liability insurance to cover potential injury claims.