3 Smart Tips For Safeguarding Your Business Against Lawsuits

Many an entrepreneur has worked for years to turn a dream into a successful enterprise -- only to have a life's work scuttled by a devastating lawsuit. If you're concerned about protecting what you've built, here are three smart tips to help your company either avoid a lawsuit entirely or defeat a lawsuit brought against it.

1. Create Customized Formal Contracts

If a disgruntled vendor, contractor or employee takes you to court claiming (falsely) that you failed to live up to an agreement, you'll be glad you can produce a formal contract that shows exactly what your agreement was and exactly how you adhered to it. This sounds like common sense, but the fact is that many business play it fast and loose with their written agreements, sometimes relying on generic "boiler plate" contracts or even email correspondence to get their terms and conditions down in writing. On the positive side, these forms of documentation are indeed allowable in court to support your case. On the negative side, they can be so vaguely worded that they do you no good at all; in fact, you may discover that you've inadvertently bound yourself to conditions that work against you.

No matter how your big or small your business may be, always have a business attorney draft a customized formal contract that covers every possible detail and contingency. If all parties have signed that document and obeyed its terms, you can defeat a fraudulent or frivolous breach of contract lawsuit.

2. Purchase Commercial Umbrella Insurance

You may have several different kinds of commercial insurance coverage protecting your company from natural disasters, property damage, theft and liability -- but are those policies sufficient to protect you if you're slapped with one or more multimillion-dollar lawsuits? It may sound like an unlikely occurrence, but if, say, your commercial vehicles caused a huge accident that killed several different drivers, you could very well find yourself facing such a scenario. That's when you need to know you have an umbrella to protect you from the storm -- in the form of a commercial umbrella insurance policy.

Umbrella insurance coverage is designed to pick up where your other insurance policies leave off, including situations they don't cover at all. It's a catch-all policy that can protect you to the tune of millions of dollars in litigation, depending on the coverage limits you invest in. If you're lucky you'll never need to rely on it -- but isn't that just as true for any other commercial insurance you buy?

3. Make Sure Nothing in Your Hiring Process Is Discriminatory

Companies and organizations of all types of sizes can get accused of discriminatory hiring practices, and some of them end up paying substantial settlements as a result. If you haven't look at your hiring applications and processes in a while, have an HR expert or business attorney go over them again, searching for any hint of discriminatory questions or requirements. For instance, you might follow the example of many state and city employers who have adopted a "ban the box" policy, eliminating the checkbox asking whether an applicant has ever been convicted of a crime.

If a former employee brings a wrongful termination lawsuit against your company, be ready to produce not only these documents and processes but others as well. The EEOC (Equal Opportunity Unemployment Commission) requires all employers to hang onto terminated employee's records for a full year from the date each employee was let go, while the Fair Labor Standards Act (FLSA) requires that records be kept for three years. Play it safe and maintain this documentation -- because you never know when some upset ex-employee might surprise you.

4. Protect Your Company Data

An invasion of your business's computer network by hackers, malware or even disgruntled ex-employees can not only destroy your ability to conduct day-to-day operations, but it can also expose the sensitive data of employees, customers and business partners to public view. This disastrous breach of privacy can easily be grounds for a lawsuit, especially if your business is compliant with privacy regulations standards such as those enforced by HIPAA (often at a cost of thousands of dollars per violation).

Protecting your IT network and media should be a top priority if you want to avoid lawsuits and financial penalties, not to mention business-destroying data loss. Invest in strong security measures such as tough-to-break passwords, updated operating systems, anti-virus software, encrypted file storage, regular backups and data restoration testing.

A combination of foresight and diligence can go a long way toward keeping your enterprise safe from lawsuits. Take the tips to heart -- and take action!

Contact a business litigation attorney for more information.