5 Mistakes That Can Get Your Small Business into Legal Trouble

In 2013, Red Bull had to pay $13 million to settle a lawsuit. Their crime – they misled customers into buying their products with inaccurate advertising. Spotify faced a lawsuit in 2015 for distributing songs without proper permission and had to pay $112.5 million in damages. Volkswagen had to pay an astounding $14.7 billion to settle a lawsuit in 2016 because they lied and cheated on their emissions tests. 

From misleading customers to straight-up lying, businesses face legal action for a lot of reasons. What’s interesting is that it’s not just the big companies that have to deal with lawsuits. Small businesses often have to go through these legal battles. According to the United States Small Business Administration (SBA), small businesses in the US get sued in a range of 36 percent to 53 percent every year. 

While several mistakes can lead to legal hassles, some of them are more troublesome than others. In this article, we’ll discuss some of the most common mistakes that can get small businesses in a lot of legal trouble. 

#1 Ignoring Employment Laws

One of the most significant legal pitfalls for small businesses is disregarding employment laws. Whether intentional or unintentional, violating these laws can lead to expensive lawsuits and damage your business's reputation. 

It's essential to understand and comply with all relevant regulations, including those governing minimum wage, overtime, discrimination, harassment, and workplace safety. Develop comprehensive employee policies, provide proper training, and seek legal advice when necessary to ensure your business remains compliant.

#2 Neglecting Intellectual Property Rights

Intellectual property (IP) includes trademarks, copyrights, and patents that protect your unique ideas, inventions, logos, and creative works. Neglecting to secure the necessary IP rights can leave your business vulnerable to infringement and legal disputes. 

Conduct thorough research to ensure your business name, branding, and product/service offerings do not infringe on existing trademarks. Moreover, consider registering your trademarks, copyrights, and patents to establish legal ownership and prevent others from profiting from your ideas.

#3 Poor Contract Management

Contracts are the backbone of business transactions, and mishandling them can expose your business to significant legal risks. Many small businesses make the mistake of not seeking legal assistance when drafting or reviewing contracts, leading to ambiguous terms, one-sided agreements, or non-compliance with relevant laws. 

Failing to fulfill contractual obligations can result in costly disputes and reputational damage. Always involve a legal professional to ensure contracts are clear, legally sound, and adequately protect your business's interests.

#4 Failure to Comply with Health and Safety Regulations

Neglecting health and safety regulations not only puts your employees at risk but also opens your business to potential legal trouble. Failure to provide a safe working environment can lead to workplace accidents, injuries, and costly workers' compensation claims. 

Stay informed about health and safety regulations applicable to your industry and ensure compliance by implementing necessary safety protocols, providing training to employees, conducting regular inspections, and maintaining appropriate insurance coverage.

Apart from ensuring a safe environment for your employees, you must also make sure your products are safe for your consumers. This is particularly important for those in the food and pharmaceutical industry, no matter how big or small your business operation is. 

Manufacturers of Tylenol, a widely used pain medication, learned this the hard way. As explained by TorHoerman Law, several lawsuits were filed against Tylenol manufacturers by people who claimed that the medication, when consumed by pregnant women, led to their kids developing Autism Spectrum Disorder (ASD) and ADHD. 

According to the lawyers, the Tylenol autism lawsuit payout could be between $50,000 and $500,000. The Tylenol lawsuit should act as a reminder to businesses of all sizes that the health and safety of both employees and customers is a priority and in no way can it be neglected. Otherwise, it becomes very difficult to avoid lawsuits. 

#5 Inadequate Record-Keeping

Proper record-keeping is crucial for both legal and financial reasons. Small businesses that neglect to maintain accurate and organized records can face legal consequences, including penalties from tax authorities and difficulties in defending against legal claims. 

Ensure you maintain thorough records of financial transactions, contracts, employee information, tax filings, and any other relevant documentation. Consider employing digital record-keeping systems to enhance efficiency and security.

As a small business owner, you can never fully know when and why you might have to deal with a lawsuit. Be it from your customers or your own employees, these lawsuits can impact you negatively both in terms of finances as well as your brand reputation. 

Therefore, it’s in your best interest to avoid the above-discussed mistakes at all costs and make sure you’re not leaving yourself and your business vulnerable to such legal actions.