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Employment litigation risks for small businesses

Just like kids and teenagers do, small businesses often experience growing pains. Turning a one-person operation into a company with a significant number of employees is not simply a matter of scaling up the status quo. The human element of running a business can be more complex than you realize.

One of the challenges associated with growing a business and hiring employees is compliance with labor and employment laws. Even if your business is small, you need to be prepared for the risk of being charged with employment discrimination, wrongful termination, harassment or other illegal behavior.

According to the 2015 Hiscox Guide to Employee Lawsuits, small and medium-sized businesses in the United States have nearly a 12 percent chance (on average) of having an employment charged filed against them by an employee. For purposes of the study, businesses were considered small and medium-sized if they had more than 10 employees but fewer than 500.

The good news is that the risk to businesses in Colorado seems to be consistent with the national average. There are at least 10 states where the likelihood of facing an employment charge is substantially higher than the 11.7 percent average.

That being said, the risk to business owners in Colorado should not be dismissed too lightly. Even if an employment charge is overblown or completely without merit, it can still damage your business in a number of ways, including:

  • The cost of legal fees to defend against a claim
  • The damage to your company's reputation with consumers
  • Reduced workplace morale
  • Lower employee productivity
  • Lost work time related to dealing with the employment charge

The best way to protect your business from employment charges and lawsuits is to prevent them if at all possible. Even if your company has just a handful of employees, it is a good idea to create clear rules and policies governing workplace behavior and outlining employee rights.

Another great way to prevent and respond to employment charges is to seek help from an experienced business law attorney. A good attorney can help you draft thorough and clear contracts, develop anti-harassment and anti-discrimination policies and ensure that your company complies with all applicable employment/labor laws. If need be, your attorney can also represent you in litigation.

Although the risks seem low, an employment charge or lawsuit could happen to nearly any business. Please make sure that you have a plan in place to prevent and respond to such charges.

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