Torts and liability are not just a problem in the medical industry, but throughout Corporate America. All of America is suffering because of runaway lawsuits. Litigation has taken it's toll more greatly with small business, where the majority of America is employed.
You will not find litigation on this list of top-10 things that will kill a small business. Legal issues fall under the umbrella of poor management and can lead to cash flow difficulties. It can also lead to levels of stress that kill good customer service and synergy between employees. You can see legal issues all over this list.
The dollar cost of litigation on small business is not available in this study from the SBA. According to the report, the majority of legal cases that a small business deals with are for amounts under 10,000. Litigation is part of being in business, and the majority of legal cases are not going to bring most businesses to their knees. It's that occasional big case that causes problems.
The plurality of small business lawsuits comes from contract disputes...about 34% of lawsuits. #2 is torts and liability. #3 is civil rights lawsuits, #4 is a general category which includes prisoner petitions and federal tax disputes. #5 is labor issues and #6 is property rights disputes. These six categories represent 96% of the lawsuits that small business faces each year.
More than half of lawsuits directed at small business are at those that have fewer than 50 employees. At the time of the survey, 95% of businesses surveyed were in business more than 5 years. The majority of businesses sued had revenue over 5 million.
The SBA study said that there are three main causes for lawsuits against small business.
1. Employee Complaints
2. Business-specific claims such as copyright infringement.
3. Customer satisfaction issues.
Here is one place where government spending can create more revenue for the government than it spends. If the majority of business and employment in America is small business, then it would be money well spent to protect small business and keep tax dollars from small business flowing. There is also the economic principle of opportunity cost. What could that dollar that is spent to settle a legal matter be spent on instead?
We have a public defenders office to provide counsel to those accused of crime. Every county has an extension agent to give advice to farmers. It would be money well spent by government to have a small business assistance office in each county to provide advice to small business. There is such a thing on a small level, the NFIB. However, they do very little outside of lobbying. The advice they give is good, but would be more lasting if there was someone to talk to face-to-face. At least, there should be a legal referral service to someone familiar with the laws in the local state. If your business needs help writing a contract, you know who you can retain to ensure the contract prevents a lawsuit.
It is well understood that we live in a litigious society. According to the Public Law Research Institute, the major of wrongful termination lawsuits are dismissed before they ever go to trial. If there is basis for such lawsuits to go to trial, most companies...and wisely so...settle these cases before they to to trial. When they go to trial, the rewards are huge. Usually, the rewards are between 450,000 and 650,000.
Here is where reform can help. Let's say that you are wrongfully terminated at age 45. Does a jury really need to award the plantiff with the amount of money that would have been earned up until the age of 65? Even at age 45, people usually do not stay with a private-sector company for 20 years until they retire in today's society. Such cases could logically be settled at 5 years of lost wages, health care benefits and coverage at an executive-level job-search firm and retraining if that is required to obtain new employment. For the average person, this is around 250,000. This is the type of reform that is needed. We need to prevent run-a-way jury awards. We need to get society away from the "sue someone to get rich" mentality.
For companies with enough revenue to hire permanent legal counsel, this reform may not be needed. For everyone else, however, tort reform is necessary. It could be the difference, for some small firms, between staying open and closing. Until this happens, here is a list, according to the NFIB, of the top 5 things a small business can do to prevent lawsuits.
1. Document everything. Every business conversation--whether with employees, partners or customers--should be put in writing.
2. Create an employee handbook. Employees should know the company policies on discrimination, sexual harassment and such. No employee termination should come as a surprise.
3. Understand intellectual property laws. Know whether or not you have the right to use something that you borrow from another firm.
4. Maintain the business property. Do everything possible to prevent accidents. Purchase accident liability insurance. Have a regular insurance audit.
5. Communicate. Some misunderstandings can be cleared up with a simple phone call or a face to face conversation before they result legal action.
Taking these steps will help prevent the big lawsuits. Even after proper tort reform, this is still good advice.
Step 1--Fix the corporate tax structure.
Step 2--Interest rates and lending
Step 3--Energy
Step 4--Legal Reforms
Step 5--Outsourcing
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