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It is impossible to predict every lawsuit that a small business might face. There is nothing to prevent angry vendors, entitled customers, or disgruntled employees from filing a lawsuit, even if they have no legitimate basis. The more a business owner delegates responsibilities to employees, the greater the risk that an employee makes a mistake and exposes the business to a lawsuit. Even the most vigilant, hands-on business owner could make a mistake that leads to a complaint filed against their business.
Most Common Lawsuits
A lawsuit from a customer or vendor is always possible, but the most common lawsuits brought against small businesses are brought by employees, including:
- Lawsuits alleging discrimination
- Lawsuits alleging wrongful termination
- Lawsuits alleging wage and hour violations
The impetus for such a suit can be anything from a fired employee feeling slighted to an employee being demoted or passed over for an advancement opportunity.
Protected Classes
If the employee or candidate believes that the action was taken for a reason related to race, gender, religion, sexual orientation, gender identity, or another protected classification, that employee might file a lawsuit. California law and Federal law acknowledge different lists of protected classes. Under California law, the protected classes are:
- The race and national origin of the employee or candidate
- The ancestry and skin color of the employee
- Religious beliefs and practices
- Age over 40
- Sex or gender of the employee
- Gender identity or expression
- Sexual orientation of the employee
- Marital status of the employee
- Medical conditions and history
- Mental or physical disabilities
- Genetic information about the employee or candidate
- Status as a veteran or member of the Armed Forces
Under Federal law, the protected classes include:
- Age
- Race
- Sex
- Disability
- National origin
- Religion
- Skin color
- Immigration status
- Genetic information
- Status as a veteran
In any discrimination case, the court will try to assess the real reason for decisions made at the place of business. Without documentation supporting your version of events, it is difficult to defend against a discrimination allegation. It is important to document any negative or positive behaviors at work so that if an employee does complain of discrimination, the court can see the employee’s work history and the real reason why they may have been terminated or passed over for a promotion. Avoid taking any actions that could expose you to a potential lawsuit for discrimination. Disparaging remarks made about any of these protected classes can create a hostile work environment and lead to lawsuits. If an employer is faced with a lawsuit, or threat of a lawsuit by an employee or former employee, they should seek counsel immediately from a knowledgeable attorney experienced in employment law and employment litigation.
Lawsuits for Wrongful Termination
California is an at-will state, meaning that both employers and employees generally have the right to end the relationship at any time for any reason. There are exceptions, however. If an employee believes they were terminated in violation of a legally binding contract, or a California labor law, they may file a lawsuit alleging wrongful termination. If you have a contract with an employee, honor every provision of the contract and do not terminate the employee in violation of the agreement. Even if you don’t have a contract, an employee may still allege wrongful termination under certain circumstances. California law prohibits retaliation against employees who:
- Request leave for family care, serious health issues, or pregnancy disability
- Report the abuse of patients in a tax-supported institution
- File a complaint with the California Labor Commissioner
- Perform a variety of social duties, such as serving on a jury or as a volunteer firefighter
- Inform the employer that they are a crime victim
California law protects employees from retaliation in many circumstances. Even though an allegation may be difficult for an employee to prove in court, an employer who has documented the employee’s actions at work will have a stronger case.
Lawsuits for Wage and Hour Violations
Other common lawsuits brought against businesses concern wage and hour violations. The California Division of Labor handles wage claim adjudication issues, including:
- Nonpayment of wages
- Vacation pay violations
- Overtime pay violations
California employers must pay wages twice every calendar month on regular dates established by the employer. If a payment is late, the employer must pay a statutory penalty of $100 per employee for a first offense. For a second or subsequent offense, the penalty increases to $200 per employee plus 25% of the unpaid wages.
California law treats vacation pay as a form of wages. Employers are not obligated to provide vacation time. If they do, they are not allowed to cancel vacation pay even if they terminate the employee. The employer must still pay any vacation time the employee has earned.
Many employers deny their employees overtime pay in the interest of saving money, through misclassifying the employee as “exempt” and paying the employee on a salary basis. This can be significantly more expensive in the long run because if an employee sues, they may be entitled to back pay (potentially up to four years), penalties, and applicable attorneys’ fees. To minimize confusion, it is wise to discuss the new federal overtime rules with an experienced employment law attorney and to have contracts or offer letters that clearly establish the employer/employee relationship. A clear and comprehensive contract can also help protect an employer against a lawsuit for wrongful termination. Working with an experienced attorney is the best solution for drafting these agreements and avoiding these types of lawsuits.
Written Agreements with Vendors and Customers
It also makes sense to put agreements with vendors and customers in writing. The contracts should include:
- A general description of the work to be performed
- A list of any items to be delivered
- A project schedule with deadlines
- The fee, and the circumstances under which additional fees might be charged
- Warranties included with the work, indemnification, contract length, how it can be terminated, and how disputes will be resolved
Personal Injury Lawsuits
Personal injury lawsuits against small businesses are also common. In addition to keeping a place of business safe, it is important that employees are properly classified as employees or independent contractors, and that the business carries the correct workers’ compensation insurance. Most states require employers to carry insurance in case of a workplace injury. Additionally, employees injured at work are usually precluded from suing their employer and are instead referred to workers’ compensation courts. An employer may be responsible for an injury and associated damages for an employee who was misclassified as an independent contractor, where no workers’ compensation insurance for the employee was in place.
Contact an Employment Law Attorney Today
What can you do if your small business faces a lawsuit? The best defense is always to do things correctly at the start. If you carefully avoid discrimination, wrongful termination, and wage and hour violations, you should be well positioned to beat most potential lawsuits your company may face. Don’t fight such a lawsuit on your own. Schneiders & Associates, LLP can aggressively defend your small business so that you can focus on what you do best.The attorneys at Schneiders & Associates, LLP are well-versed in employment law, contracts, and litigation. For more information on any of the above, please contact us at www.rstlegal.com, info@rstlegal.com, or 805-386-9762.