Historically, federal studies have shown that up to 53% of small businesses have court cases pending each year. For major companies, these studies have shown the average outside cost of litigation reach well past $100 million per year.
So what can a company of any size do to limit the impact of litigation on its business?
We have identified three important considerations to help limit the consequences of a variety of claims that could result in litigation.
Understand the source of suits
It’s helpful to understand where disputes are likely to arise so you can protect the company from avoidable claims. We typically see lawsuits arise from:
- Intra-company ownership disputes
- Employee hiring and management (for example, Equal Employment Opportunity Commission claims)
- Trademark and copyright claims
- Accidents (slip and fall, workers’ compensation, vehicle crashes, etc.)
- Breaches of non-compete and non-solicitation contracts
Evaluate your insurance and business policies and procedures
Insurance policies and coverages are often your first line of defense. You want to have enough coverage for the type and size of your business and the right coverage for the types of claims. These include Commercial General Liability, Workers’ Compensation, Automobile, Professional Liability/Errors and Omissions, Employment Practices Liability Insurance, and more.
Similarly, review how your business operates. Are there policies in place? Are the policies and procedures in your company handbook and personnel policies? Is staff following the company’s training manuals, handbooks, and policies? Lawyers for people suing you will be looking carefully to see whether your company follows policies and procedures.
Policies and procedures should be put in place for areas such as document retention, human resources, conflicts, handling disputes (whether internal with employees or external with customers), discipline and evaluation of employees, and accident investigation and response. This may also be known as a handbook for your business, and may even include how to report accidents and incidents, workplace injuries, and how to operate machinery.
Policies and procedures should be straightforward, concise, and easy to understand. Often times, consulting an attorney for the creation of your policies and procedures is important, and a benefit to minimizing the impact of litigation. Depending on the dispute, a business’s handbook could be the first line of defense against a claim – or if not properly administered, the ammunition needed by an opposing attorney to significantly increase the amount of the claim.
Maintaining documents and keeping to the “what,” not the “why”
Document retention is a key part of any business, whether it is the company’s legal and organizational documents, those required to be maintained by law, or even ensuring that security footage and investigation reports are saved and preserved after an incident. Documents and other recorded materials become a key part of any dispute. These materials are the first things your attorney will want to review following an incident, and the first things opposing counsel will want to get their hands on. A huge chunk of these important documents includes e-mail and other correspondence, both internal and external. Whether it is a business dispute that arose due to a disagreement on how the company is run, or an injury that occurred on-site, the documents and related correspondence are important. Policies for document retention should include how long documents are maintained, the type of documents to be maintained, and the format – hard copy or electronic, including e-mail.
Company investigations are important evidence in many cases, especially where accident and employee harassment and discrimination matters are involved. Employees responsible for investigations and related reports should have training on how to handle these matters because they could be creating evidence that may be used against the company in any future litigation. They also should know when they need to bring their manager into the process.
It’s critical that whoever is assigned to investigate and/or prepare a written report stick to the facts of what happened, based on witness statements with personal knowledge. The writer should not attempt to decide why the incident happened or who was at fault.
If litigation is imminent, you should be prepared to produce all written reports, emails, and other documents which likely will be shared with the lawyers representing the party on the other side of the company. It is best practice not to create reports or evidence that may eventually be used against the company, and instead allow the report to simply stick to the facts that are personally known to the company.
While litigation burdens resources and is full of uncertainty, there are steps you can take to manage the initial claim and lessen the risks from a potential lawsuit. If you take the steps now to limit the consequences of a future lawsuit, you can better protect the company if/when you get sued. That way, your company can return to doing what it does best.
Sarah H. Abbott is a business, regulatory, and real estate attorney in Ireland Stapleton’s Grand Junction office.
Mamie Ling is a litigation attorney in Denver representing clients in retail and hospitality, real estate, construction, transportation, and public entities in matters involving contractual disputes, products liability, construction defect, governmental immunity, and premises liability.
David S. Manush of the Denver office focuses on construction law and professional liability matters, in which he advises and defends architects, engineers, and other construction professionals in all areas of litigation in state and federal court.
What is written here is for general information only and should not be taken as legal advice. If legal advice is needed, please consult an attorney.