How Vulnerable is Your Company to Business Litigation?

May 13, 2021

If you are a business owner, the threat of litigation is ever-present. How you conduct every aspect of your business dealings could eventually come under legal scrutiny if it is…

If you are a business owner, the threat of litigation is ever-present. How you conduct every aspect of your business dealings could eventually come under legal scrutiny if it is not done correctly and according to applicable laws and regulations. Some common areas that result in company-based litigation include:

  • Employer/Employee relations
  • Disciplinary actions
  • Contract disputes
  • Real estate, zoning, and real property disputes
  • Partnership dissolution or ownership disagreements
  • Intellectual property disputes
  • Product or service liability
  • Class action lawsuits
  • Industry-specific breaches of compliance

The breadth of these topics demonstrates that even if you focus on performing perfectly in one area, the potential for a legal matter to arise in another area of your business remains. And unfortunately, any of these types of litigation can be costly – even devastating – for a company of all sizes.

Legal disputes can be long and complex. Even if you win, you will likely have committed so much money, time, effort, and resources to the litigation efforts that your business will almost certainly feel the impact in its budget. And if you lose a case with a high award, it is likely that you may not even be able to continue operating. Moreover, dealing with litigation can be emotionally draining, making it hard to focus on leading and growing your company. The bottom line is that the litigation itself takes a ton of money and effort, no matter whether you win or lose. And either way, it can threaten the continued existence of your company.

Additionally, legal disputes may cause friction between different parties, and business relationships may be damaged beyond repair. This outcome can result in lost suppliers and customers. And even your business’s clientele is impacted during litigation. Reputation is the foundation on which most companies thrive and grow. But litigation often means that reputation takes a hit, and the trust and confidence of customers are eroded. In today’s market, up to between 70%-80% of a company’s market value is derived from intangibles like brand equity, goodwill, and intellectual capital. In these market conditions, suffering a reputation-destroying lawsuit can be nearly as damaging as the financial investment required to deal with it.

Since the magnitude of these concerns is so great, it is worth taking stock of your company periodically to determine how vulnerable it may be to business litigation. While there is no guaranteed way to avoid a lawsuit, it’s always a great idea to focus on deficiencies and implement precautions when necessary. Most of the efforts can be focused on the contributors to litigation, such as:

  • Reputation/Service/Brand: One of the biggest risk for lititation is previous litigation. If a company repeatedly provides a service or product that results in litigation, they often receive a reputation as untrustworthy based upon consistent business behaviors. It’s crucial to focus on delivering quality products and services and honoring contracts with partners and suppliers. This strategy is one of the best ways to ensure your reputation remains untarnished and prevent litigation.
  • Address Complaints Fairly & Document Them Entirely: In most instances of business litigation, a lawsuit could be avoided. If you are handling customer complaints – which are inevitable when you own a business – fairly and doing what you can to address any deficiencies, you can avoid a lawsuit. In extreme cases where you can’t, and the individual insists on taking it to court, the best thing you can do is provide evidence that you attempted to make the circumstances right for the customer. If you took these actions and documented them well, you are likely not legally liable for any additional damages.
  • Data: Data confidentiality and breaches are becoming a growing concern for many business owners. And lawsuits related to data breaches can be incredibly costly. It is worth spending some time looking at your data security measure to ensure that they are adequate and appropriate.
  • Employment: Issues related to HR and employment are one of the biggest causes of business litigation. Employers are bound to follow many laws and regulations related to employment and compensation. They are also often bound to follow certain procedures when disputes arise, depending upon the employment contract.

These topics are just the tip of the iceberg regarding the many causes and contributors that may result in business litigation. While focusing on these areas can help you address some deficiencies and reduce your chances of being sued, there are many other practical concerns for business owners. One of the best ways to find out how vulnerable your business is and address any vulnerabilities is by working with knowledgeable business attorneys who can help you conduct a risk assessment that addresses your industry’s unique variables and those of your business.

Font Resize