Get some perspective on the risk of legal action

Statue of justice, holding scales

For the most part, businesses run well, employees love their job, and employers are good people. But when it goes wrong, it can go badly wrong for both. The threat of legal action has greater consequences than you think – let’s put it in perspective.

Take any of the following scenarios and think about how you would deal with them in your business:

  • A client refuses to pay a bill and leaves cashflow seriously impacted, but it will cost you more to pursue them in court than to write the payment off as a bad debt
  • An employee registers a Fair Work Australia complaint. It is void and unsubstantiated but you have to respond and attend a hearing. It will cost you at least $4,000 in legal fees just to respond.
  • A senior manager spends on your company Amex card for personal use and keeps it quiet when they leave your employ – should you pursue them or let it go?
  • A supplier hears unfounded defamatory comments about your company from a disgruntled customer. What do you do?

Colleagues of mine have recently lived through one or all of the above scenarios. The consequences have been dire in terms of financial cost and time, the negative energy generated, loss of confidence, low team morale, distraction and effect on focus.

The risks are real and costly

Whether you run a two-man or a thousand-man operation, legal action, like bad debts, is inevitable and small businesses are particularly vulnerable. Why? Because the cost to react and fight is often more than the cost to concede, pay or settle.

No-one in business wants to enter a fight by choice and small businesses are more time and resource poor than most. For many business owners who have done nothing wrong, they are far more motivated to engage in a settlement rather than go through the lengthy and traumatic experience of defending a lawsuit in court. The law is confusing and unknown to those not directly engaged with it daily.

Legal action from employees and customers

It is worth acknowledging the facts – you are likely to be threatened by an employee, a customer or even a supplier. While the law exists to protect our employees, rightly so, a disgruntled contact can be a dangerous thing and the topics of dispute can range widely.

Employees can sue for:

  • Personal injury incurred on the job
  • No proper justification for termination
  • Reduction or change in working hours
  • Inappropriate or inconclusive performance reviews
  • Lack of training that was promised
  • Overtime worked with no reimbursement – cases have been heard where an employee takes their lunch at their desk and works at the same time
  • Responding to emails or doing some form of work at home may give license for employees to claim overtime work and compensation
  • Employees could claim unfair dismissal if their position is terminated on the basis of inappropriate social media posts.

Many of us simply don’t prepare enough for aggression against our name, reputation and business. And the law, while it rightfully protects employees, makes it difficult for employers to respond without a large impact on time, money and energy.

Customers may sue for:

  • Misunderstood KPIs
  • Bodily harm incurred from using your product or service
  • Breach of contract
  • Property damage
  • Consumer violations.

The danger is of course, that any of these could occur due to uncontrollable factors but your business could still be liable.

How does the government help?

The government provides information for free on how to manage and minimise the risk of being sued by employees and customers. The majority of this advice is found on the website www.business.gov.au under best practice. The website also provides legal consultation for small businesses where business owners can check their operational standards are up to par with regulations and business law. Other useful sites for employment-related obligations include those of Fair Work Australia and the Fair Work Ombudsman.

Get insurance to protect you and your business

Insurance is a curious thing, only important when you need it and for many that’s too late. But one of the first steps is to set up liability insurance – for some professions this is price prohibitive in itself, but it is a start.

Public liability insurance protects business owners from occurrences that happen during the course of the business. It can protect the business and the owners from a suit that would involve bodily harm claims from a third party in some sort of incident as well as property damage.

However, it does not protect the business or its owners from suits that involve injuries to employees, professional mistakes, commercial property insurance and auto related incidents. You should consider taking out additional insurance which may include product and professional indemnity insurance, workers compensation insurance as well as cover for certain employment related claims like unfair dismissal, unlawful discrimination and work health and safety precautions.

Check your business structure

Another important factor when it comes to liability is your business structure. From a risk perspective, it may be better, for example, and depending on your circumstances, to have your business conducted by a corporation, rather than as a sole proprietorship or partnership. You should get professional advice on what structure suits you best, especially in light of Government attempts to legislate to “lift the corporate veil” and make directors and other individuals personally liable for the debts of a business.

Neil Napper, Partner at Lander & Rogers Lawyers, specialises in Workplace Relations & Safety. He says: “Business owners owe it to themselves and their stakeholders to follow these practical tips to minimise their legal risks”:

Top tips to protect you and yours

  1. Be in complete compliance with state and federal laws and regulations and check your insurances. Have you got appropriate cover?
  2. Adopt best workplace practices. How long is it since you reviewed your policies and contracts to make sure they are up to date?
  3. Integrate training and education along with a business operational guide
  4. Act quickly to customer complaints and take complaints seriously. Deal with them to keep the business out of court or litigation.
  5. Establish from the outset clear employee policies on relevant matters such as overtime and stick to them.
  6. In terms of employee overtime, establish from the outset clear policies on overtime and stick to them.
  7. Set strict guidelines around social media use in and out of the office via a social media policy.
  8. Monitor the use of smartphones, tablets and PCs given to employees and make sure you comply with privacy and workplace surveillance laws.
  9. If there is a problem, document it. If it is an employee behavioural or performance issue , make sure you discuss it with them and that you document what the issue is, how the employee can fix it and what will happen if they don’t.
  10. Secondly, document if an employee has transgressed any agreements and give notification to the employee with supporting documentation.
  11. Be aware of your environment. Talk to your people, your customers and suppliers, work with your staff, keep your eyes and ears open.
  12. Be vigilant to what your employees are doing.
  13. Make sure your contracts, policy documents and agreements are up to date and relevant.
  14. If in doubt ask yourself – how would I like to be treated in this situation? It’s a useful rule of thumb to help guide your behaviour.

For the most part, businesses run well, employees love their job, and employers are good people. But when it goes wrong, it can go badly wrong for both. The responsibility is yours as a business owner to secure the safety of both your business and your employees.