The National Federation of Independent Business (NFIB) advises that all small-business owners develop a strategy to help prevent legal entanglements and to defend their businesses. NFIB Legal Foundation Senior Attorney Elizabeth Gaudio recommends 10 ways for small business owners to avoid legal trouble:
1. Incorporate: Limit your personal liability and save on taxes.
2. Know the law: Focus on employment laws, tax laws, discrimination laws and environmental and health safety.
3. Maintain adequate insurance: Cover yourself for all situations.
4. Manage employees fairly and wisely: Hire right, set clear expectations with a code of conduct and enforce business policy with each employee.
5. Prohibit discrimination: Provide employees with written policies stating that discrimination and harassment will not be tolerated. Be aware of what goes on at all company functions.
6. Classify employees correctly under the Fair Labor Standards Act (FLSA): Regularly review your employees' FLSA classifications and keep extensive payroll records.
7. Be careful with independent contractors: To determine whether or not an individual is an employee or an independent contractor, employers must conduct a fact-specific inquiry regarding the particular job duties of that individual.
8. Watch out for those workers' compensation claims: Stop workplace accidents before they happen by implementing proactive training and hiring procedures and a written safety plan; promoting safety and wellness; and aggressively investigating accidents. Report claims immediately; Gaudio says that waiting one week could cause settlement costs to increase up to 60 percent.
9. Retain an attorney: At some point, all small businesses will need a lawyer. Plan ahead, interview a few before making a choice —before the stress of an actual event occurs. Keep your legal costs down by only making necessary phone calls, being organized, requiring authorization for any expenses exceeding $200, asking for receipts and meeting quarterly to discuss case progress.
10. Document, document, document: Institute a document retention policy that all employees must follow. A good policy will promote efficiency, save valuable computer and physical space and protect your company in case of a lawsuit.
The NFIB says that lawsuits can severely hurt small businesses, as well as new business formation and job creation. While there are no guarantees when it comes to court cases, assessing and preparing for your risks proactively will help minimize your liability. For more information, visit the NFIB website at www.NFIB.com.
Insurance information
One of NFIB's tips includes maintaining enough insurance to protect yourself from lawsuits. Bob Tschippert, senior vice president, Automotive Specialty Markets at Universal Underwriters Group, notes insurance coverage should be from "a reputable, specialized insurer that knows and understands the various types of exposures they face."
Coverage depends on which sector your business falls in. Tschippert breaks it down for us. For the service and repair sector, business owners should look for a package that includes:
- Garage keepers coverage for damage that may be caused to a customer's vehicle.
- Garage insurance to pay for a loss that may occur when the work performed or parts installed fail and injury occurs.
- Building, stock and equipment coverage — including employee tools coverage for theft of your tools or equipment that prevents work from being performed.
- Pollution liability coverage to apply if you are found to be a potentially responsible party if a pollution disposal company suffers an accident or incident creating an unexpected exposure for the garage owner.
- Workers' compensation for injury to workers and an umbrella policy for the unforeseen claim that may occur.
For parts businesses, owners should look for a partner who understands the parts business in addition to the coverages from a highly specialized carrier that understands your exposures. This includes a partner who understands the delivery business and can provide loss prevention input to help manage driver and fleet exposures.
"In order to keep your insurance up to date and correct, conduct an annual policy review," suggests Tschippert. "Take the time necessary so you can put the insurance purchase to bed until next year, and not lose sleep over it."
Aftermarket businesses can talk with fellow business owners, or contact their national or state association, or program group, to find insurance providers in their area.
