Had Benjamin Franklin been around for the last 20 years, he might have reworded his infamous maxim to say, “Nothing is certain except death and taxes … and lawsuits.” Because that’s how it feels: No matter how careful you are, how carefully you’ve observed the law, someone will always find a way to sue you. Unfortunately, one major source of lawsuits for small business owners is from current and former employees. (It doesn’t help that there are lawyers who run TV commercials aimed at recruiting clients who they can represent in lawsuits against employers.)


As we know you didn’t start a small business so that you could be sued by employees, we encourage you to seek advice from your attorney on things you might do to lessen your chances of an employee lawsuit. Advice from your local attorney is especially important as laws and regulations can vary from jurisdiction to jurisdiction and state to state.

In addition to the specific advice you should seek from your lawyer, here are a few guidelines:

Treat employees (and customers, suppliers, etc.) with decency and respect.

If we weren’t reading daily reports about people with power taking advantage of those with whom they come in contact, we would assume all business owners and managers would understand this advice intuitively. But that’s obviously not the case. If you don’t follow this advice, chances are you’ll skip the others, also. And frankly, you deserve to be sued, or worse.

Follow labor laws as closely as possible.

If you don’t know what decency and respect are, at least follow labor laws. You can find them explained by the U.S. Department of Labor’s eLaw resource.

Clearly define work expectations.

No matter what their position, employees should always have clear definitions of success regarding their job, and routine reviews to let them know how they’re doing. This way, if they are later terminated, it can be showed how they didn’t meet expectations—and that there’s good reason for letting them go.

Terminate carefully and with respect.

Even if you have a good reason for termination, it’s important not to do it brashly. Depending on how you treat the employee, they may either feel furious or fairly treated. So take time to communicate and listen. A decent severance package can also go a long way in calming the waters. Have a document ready with all the information the employee will need. Let the employee know that you or a designated person will be available to assist with any administrative needs that may come up.

Have an employee handbook.

An employee handbook is perhaps one of the most important resources you can create for your small business—especially in terms of lawsuit protection. Within it you should include all vital employment issues: termination, maternity leaves, sick leaves, compensation and benefits, sexual harassment, etc. Make sure, though, that you write it with the help of legal counsel or a reliable human resources consultant. This will help ensure everything is as sound as it possibly can be.

Set up personnel records and keep them current.

Refer to the SmallBusiness.com checklist of items to keep (and not to keep) in an employee’s file. Such files should include any records that may be related to an employee’s performance and record. If you are ever sued, you’ll regret not having such files, if you choose not to.

And when all else fails …

Talk with your insurance provider to make sure you are covered appropriately. No, it’s not cheap, but neither are lawsuits. Keep in mind you’re going to want three guarantees in a policy: the right to select a lawyer, the right to consent before settling, and a per-claim, not per-claimant, deductible.

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