Lawsuits and Liability—Be Prepared!

Sometimes, when you make a business decision that directly affects someone, like terminating someone, there is fallout. Consider the following from The Detroit News, March 19, 2009: 

A sacked salesman is suing his former boss for more than $25,000, claiming he was fired for lacking a "flat belly." But his ex-boss says the only thing flat was his sales.Patrick J. Ronayne, 61, of Bloomfield Hills is suing Winston Golf and Winston Manufacturing for weight and age discrimination, claiming he lost his $75,000-a-year job in April 2007 because of his waistline. His lawsuit in Oakland County Circuit Court claims he was an "excellent performer" and received an unscheduled bonus in his three years with the firm. 

Ronayne refused comment, but a spokesman for the Auburn Hills firm was incredulous Wednesday when he heard about the suit. 

"He said what?" asked Garrett Morelock, a spokesman for the company, which is also part of 3Sixty Group, Monroe Engineering Products and Miller Dial. 

"That is so absurd I don't know what to say. Is this some kind of early April Fool's joke? He was let go for one reason and one reason only: He didn't sell. You don't let good salesmen go and he was not a good salesman. 

"You should see some of the people walking around here," he said with a laugh. "Flat bellies is not a requirement, believe me." 

Ronayne is listed in state records as 5 feet 11 inches tall and 225 pounds. 

His lawsuit, assigned to Judge Denise Langford Morris, claims he was let go with an unattributed statement that "he was not a 'flat belly' like some of the other (and younger) people who were retained."

The suit claims he was replaced by a thinner person. 

"I don't even remember him being that heavy," Morelock said of Ronayne. 

OK, this is a pretty frivolous example, but it makes a point: If there is a lawyer willing to take the case, you be sued for anything. In another case, a bar patron sued a nightclub when she got up on the bar to dance and slipped and fell. In another, a shoe store patron claimed injuries to her hip, back, neck and internal and external organs and great pain and mental anguish from tripping over the threshold of the store. True, there was a two-inch drop between the mall floor and the store floor, but on the other hand she just couldn’t keep her eyes off the displays set up near the door. Maybe there is some culpability on the part of the store, or the mall, but just the same there is something to be said for mom’s advice to watch where you are going. 

Be that as it may, lawsuits are a major problem for small businesses. According to a 2007 Harris Interactive poll conducted for the US Chamber Institute for Legal Reform, among business owners/managers who are very or somewhat concerned about lawsuits: 

62% say they make business decisions to avoid lawsuits. These decisions have had the following effects:

–        61% made their products and services more expensive.
–        45% made a product or service unavailable to customers.
–        23% say these decisions forced them to cut employee benefits.
–        11% say these decisions forced them to lay off employees. 

62%, or almost six in ten, feel they would be able to increase revenues if they were assured that they would be protected from frivolous/unfair lawsuits. Only 12% would not be able to do this at all. 

Of those 62% who said they could increase revenues if protected from unfair/frivolous lawsuits, they would largely reinvest these additional revenues in their businesses, and in the following ways:

–        80% would improve facilities or purchase new equipment.
–        76% would increase compensation to employees.
–        69% would expand the market for what they offer.
–        65% would increase benefits offered to employees.
–        63% would hire additional employees.
–        56% would develop new products or services. 

A substantial number of small business owners/managers (46%) have been threatened with an actual lawsuit. These threats have had the following effects:

–        75% say the threats added time and expense to their business operations.
–        60% say the threats made them feel more constrained in making business decisions generally.
–        54% say the threats caused them to make business decisions they would not otherwise have made. 

More than a third (34%) of qualified small businesses have had a lawsuit filed against them in the past ten years. These suits have had the following effects on owners/managers and their businesses:

–        73% say their business suffered because litigation was very time consuming.
–        64% say their business suffered because litigation was very expensive.
–        61% say they felt more constrained in making business decisions generally.
–        54% say they made a business decision they would not otherwise have made.
–        45% say they changed business practices in ways that do not benefit customers. 

That is a heavy impact on small businesses and small business owners, but what can they do? The truth is that lawsuits are best avoided. That means auditing your business to see what, if any, potential legal problems may exist. Is the floor even? Is the bartender trained to keep inebriated patrons from getting up and doing the Coyote Ugly on the bar? Is your business living up to the promises being made by your sales people? How do your customer service people approach your customers? These are just a few of the many questions you need to be asking. Look at your business like a potential litigant—or a plaintiff’s attorney—might, and if you find a problem, fix it. Some of the areas you should examine include: 

  • Safety. Is your business safe for people to enter? If there are dangerous areas, as they clearly marked and are visitors kept away from them? Don’t count on common sense, the physical well-being of people visiting your establishment and working for you is your responsibility so take steps to make your business as safe as possible.
  • Financial. Are your contracts in order and are you living up to them? Paying your bills on time? How about those quarterly returns to the IRS? This is not a place to cut corners. Make sure you are financially clean and your records are well kept.
  • Employment. When it comes to employees, make sure that everything is clearly spelled-out. Make sure that the employees understand what you expect of them, the rewards for success and the consequences of failure. Have an up-to-date employee handbook and a clear disciplinary procedure that is administered fairly, across the entire company. Also, document everything. It will make things much easier for you if you have to go to court after firing someone.
  • Regulatory. Do you have your business license? Are you complying with all local, county, state and federal regulations on your business? Are you ADA-compliant? This last is crucial since there are people who have turned suing over ADA violations into a cottage industry. 

Finally, make sure that you have good liability insurance in effect as well as a good lawyer on retainer who can act in your interests if something does happen. You may never need them, and that’s exactly what you want; but if you do, you will be glad to know they are there.