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Legal action does not have to doom your small business

When a business -- any business -- gets sued by a current or former employee, the damage done to the brand and the current crop of employees can be severe. Local or national media can thrust a spotlight on the business; employees can become disheartened with the direction or atmosphere of the company; and it can cost the organization hundreds, thousands, or even millions of dollars to handle the legal side of the dispute.

Such a hit to the bottom line affects myriad dynamics within the company and can even exacerbate other situations (like the aforementioned media scrutiny and employee morale).

This upheaval, however, has a far greater impact on smaller businesses that may not have the resources or the experience to deal with a serious legal dispute.

First things first: it is important for small businesses to realize that, no matter the former employees reason for filing the lawsuit, in most cases the lawsuit is settled out of court. And, in many of these settled cases, that is exactly what the plaintiff wants.

They sue their former to cause a bit of chaos, which in turn earns them a big payday in court. These situations are on the rise in the U.S., too, as poor economic conditions have forced companies to layoff vast amounts of their workforce.

But, there is hope for small businesses. Something that many owners may not realize is that the company is not doomed even if named in the lawsuit. The business may only be tangentially involved in the suit -- and the plaintiff is simply trying to get as many parties involved, increasing the chances of a settlement.

Another thing that many small business owners need to avoid is doing nothing. Some people do not act on letters they receive that inform them of the impending lawsuit. This can only make the situation worse -- ignoring the problem will not make it go away. Consulting your lawyer and getting advice on how to proceed is a significant step; attacking the problem early on and getting organized will dramatically improve your chances in court.

Source: Bloomberg, "When a Small Employer Gets Sued by a Former Worker," Karen E. Klein, Oct. 22, 2012

  • Small business disputes and litigation that involves a former employee puts a company in a tough position, but it does not have to ruin your business.

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