In this series, we outline the most common ways businesses get sued (or threatened with a suit) and what can be done to minimize that risk. In this first article, we discuss the most common source of lawsuits—your own employees.

Yes, You Should Read This

Should all companies worry about being sued? While we may be a little biased, the honest answer is YES. Several recent reports found that almost 50% of small business are currently involved in at least one litigation, and approximately 90% of all businesses will at some point be sued! It's not "if" but "when".

Lawsuits cost businesses money in various ways. In addition to legal expenses, lawsuits often harm a business's reputation, distract management from successfully operating the business and, most alarmingly, inform other potential plaintiffs that you're a possible target.

The uptick in employment litigation isn't slowing down. This is fueled by more employee-friendly laws and more stringent requirements for employers. This is especially true in New York and New Jersey.

What Are Businesses Getting Sued For?

Employees sue their employers. It happens, a lot. If you're a business, it's the most common type of lawsuit you'll see. Here are the most common types of lawsuits employees file: Discrimination; sexual harassment; wage and hour; and retaliation

Federal, state, and local laws prohibit discrimination based on sex, race, religion, color, national origin, a woman's pregnancy, age, and an employee's disability (among other things). As an employer, it's important to understand that most adverse actions against a person in a protected class can be the basis for a lawsuit. Oftentimes, this "adverse action" is a termination, demotion, or office relocation. Essentially, anything that affects the terms and conditions of employment is a potential "adverse action" and thus possible grounds for a lawsuit. If it can be perceived as an adverse action, and the recipient is in a protected class, you're at risk of being sued.

Other laws protect employees' pay—how much they earn, when they earn it, and what type of information must be provided to them about their earnings and deductions. Certain employees are entitled to overtime for any hours worked in a given week over 40 hours. Others are not. Certain employees must be paid weekly. Others can be paid less frequently. And, certain workers are actually employees, even though they're paid, treated, and contracted as independent contractors.

Finally, employees who engage in "protected activity" are generally protected from retaliation. Retaliation claims are particular problematic considering the claim is separate and apart from the protected activity. For example, an employee files a complaint of sexual harassment (protected activity) and an investigation finds that no sexual harassment occurred. If the employee is then treated unfavorably after making that complaint, the employee could have a retaliation claim even though the investigation found that there was no sexual harassment in the first place.

What You Can Do About It

Again, we might be biased here, but hiring a lawyer helps. Hopefully, if you're running a business, you've already taken the steps to incorporate that business and establish liability protections (such as obtaining insurance that deals specifically with employment and commercial liability). Incorporation is the first step to protecting your personal assets from these business-related suits.

In addition, businesses can protect themselves by doing the following:

First, speak with your attorney to understand the relevant laws, how they impact your business, and what you can (and cannot) lawfully do. Having an attorney in your corner can help you avoid making mistakes that will cost you down the road. For example, lawyers can advise you on how to properly track and compensate for the number of hours certain employees work to avoid failing to pay overtime. Nothing helps defend a lawsuit for failing to pay overtime like proof that the employee never worked overtime—or did, and was properly paid for it! Or, if you want to fire someone for legitimate reasons but the employee is in a protected class, an attorney can discuss your options and help you navigate the risks inherent in making such a decision.

Second, have formal policies, handbooks, and employment agreements that adequately protect your interests and keep you and your business in legal compliance. These documents can lay out the nature of the employment relationship, including the parties' rights and obligations, workplace rules, recourse in the event of a dispute, and various other terms that could help establish a solid defense if needed.

Third, document performance issues. It's hard to justify firing someone for bad performance if you don't have documentation in support. Otherwise, it might look like you fired someone for the wrong reasons—for example, because of their race, age, or for going out on job-protected leave. Maintain a detailed log of all employee-related issues in a personnel file. It could be the key to your defense.

Fourth, in certain scenarios, you may be able to protect yourself by offering a terminated employee a severance agreement. These agreements are typically used to obtain the terminated employee's release of claims against the company, often in exchange for a payment. While not always appropriate, these agreements can create a bulletproof defense to a lawsuit.

While this is not an exhaustive list of ways you can protect yourself, it's a good start. The next part of our series will focus on contracts and the ways they lead to—and protect against—lawsuits.

Damien H. Weinstein is a founding partner at Weinstein + Klein P.C. He has extensive experience representing companies and individuals in complex litigation, disputes, and employment matters.