As an employer, you want to run your business smoothly and efficiently, without having to worry about legal disputes with your employees. However, employee lawsuits are a common and costly risk that can damage your reputation, morale, and bottom line. According to a study by Hiscox, one in five small or medium-sized businesses will face employment claims with an average cost to defend of $125,000.

So, how can you avoid employee lawsuits and create a positive and productive work environment? Here are some essential tips based on expert advice and best practices.

1. Know the laws, rules, and regulations.

One of the most important steps to avoid employee lawsuits is to comply with all federal, state, and local employment laws that apply to your business. These laws cover various aspects of the employer-employee relationship, such as wages and hours, discrimination and harassment, leave and benefits, safety and health, privacy and confidentiality, and more. You should review the Department of Labor website, your state's wage and hour website, and your county's employment-related laws to stay informed and updated on your obligations and responsibilities.

2. Be prepared with insurance.

Even if you follow all the laws and regulations, you may still face a lawsuit from a disgruntled or unhappy employee. That's why it's wise to have adequate insurance coverage to protect your business from potential liability and litigation costs. You should consider getting an employment practices liability insurance (EPLI) policy that covers claims such as wrongful termination, discrimination, harassment, retaliation, breach of contract, defamation, invasion of privacy, and more. EPLI can help you pay for legal fees, settlements, judgments, and other expenses related to employee lawsuits.

3. Create job descriptions for every position.

Another way to avoid employee lawsuits is to have clear and accurate job descriptions for every position in your organization. Job descriptions should outline the essential duties, responsibilities, qualifications, skills, and expectations for each role. They should also specify whether the position is exempt or nonexempt from overtime pay, full-time or part-time, permanent or temporary, etc. Job descriptions can help you hire the right candidates, evaluate their performance objectively, provide feedback and guidance, and avoid misunderstandings or disputes.

4. Develop performance standards for each of your positions.

In addition to having job descriptions, you should also have measurable and realistic goals and standards for your employees. You should communicate these expectations clearly and regularly to your employees and provide them with the necessary training, resources, and support to achieve them. You should also monitor their progress and performance and give them constructive feedback and recognition. By developing performance standards, you can help your employees understand what is expected of them, have standards in place to hold them accountable, and avoid complaints or claims of unfair treatment.

5. Avoid surprises.

One of the common reasons why employees sue their employers is because they feel blindsided by a negative outcome or decision that affects their employment status or conditions. For example, they may be terminated without warning or explanation, demoted or transferred without justification or consent, denied a promotion or raise without reason or feedback, etc. To avoid these situations, you should always be transparent and consistent with your employees about your policies and procedures. You should also document everything related to their employment history, such as performance reviews, disciplinary actions, accommodation requests, etc. This way, you can avoid surprises and have evidence to support your actions in court when necessary, if ever challenged by an employee.

Now let's talk about your business. Do you need help reducing the chances that an employee will file a claim against your business? Nimble Advisors can help you employ any of the strategies above, or some we didn't have sufficient room to list here—that’s what we do! We'd welcome the opportunity to chat about your business and what you are doing to avoid employee claims. Let's talk!