For small and mid-sized businesses, an employee lawsuit can come as a shock and feel like a wrecking ball. It smashes through your time, budget, and ability to sleep at night. Even if your company wins the case, the financial and emotional toll may be catastrophic.
It’s easy to tell yourself “That won’t happen to us because we are a company with an upstanding moral compass” but the reality is that employment related claims pop up when you least expect them and are extremely expensive. This is true even if your company has done nothing wrong.
There’s good news though. Most lawsuits can be avoided with proactive HR practices and clear policies. Read on for more information about employee lawsuits and how your company can prevent them.
How Much Does an Employee Lawsuit Actually Cost?
The total cost of an employee lawsuit varies widely and is dependent on a variety of factors. Here’s a snapshot of what a business may face:
- Legal Fees: These alone can range from $10,000 to $250,000 or more, depending on how far the case goes.
- Out-of-Court Settlements: They often fall between $40,000–$75,000. Many employers settle even when they believe they’re in the right, just to avoid the cost and risk of trial.
- Court judgments: These can hit six figures or more.
- Time Cost: You and your managers may spend dozens of hours preparing, gathering documentation, giving depositions, or attending hearings.
- Reputation Damage: Even a dismissed claim can harm your employer brand and employee morale.
- Insurance Premiums: One claim can cause your employment practices liability insurance (EPLI) rates to skyrocket or result in denial of coverage altogether.
And these numbers don’t even touch on the emotional stress, distraction from growth, or ripple effects across your team.
What Triggers Most Employee Lawsuits?
Most lawsuits don’t stem from major scandals. They often start with miscommunication, lack of documentation, or unintentional mistakes.
Here are some of the most common claims:
- Wrongful termination
- Discrimination based on age, race, gender, disability, etc.
- Harassment (sexual or otherwise)
- Retaliation after a complaint is made
- Unpaid wages or overtime
- Family and Medical Leave Act (FMLA) violations
- ADA (Americans with Disabilities Act) noncompliance
The truth is, you can be doing your best and still get hit with a claim. That’s why prevention is essential.
How to Protect Your Business from a Lawsuit
Now for the good news: most employee lawsuits are preventable. Here’s how to safeguard your company before a small problem becomes a legal one.
1. Have a Clear, Updated Employee Handbook
A well-written employee handbook is one of your best defenses. It should outline workplace policies, expectations, disciplinary procedures, and complaint processes. But here’s the catch: it must be up-to-date and legally compliant.
2. Train Your Managers (Seriously)
Many lawsuits stem from the actions or inactions of managers. Train your leadership team on topics like:
- Anti-discrimination and harassment laws
- Proper hiring and firing procedures
- How to document performance concerns
- Handling complaints the right way
When managers know what to say, what not to say, and when to escalate, you dramatically reduce risk.
3. Document, Document, Document
If you ever do face a claim, documentation is your best friend. Keep records of:
- Interviews and hiring decisions
- Performance evaluations
- Disciplinary actions
- Employee complaints and follow-up actions
Without proper documentation, it becomes your word versus theirs and that’s a battle you don’t want to fight in court.
4. Be Proactive About Culture and Communication
- Employees are less likely to file lawsuits when they feel heard, respected, and supported. Foster a workplace culture where:
- Employees know how to report concerns
- Issues are addressed promptly and fairly
- Feedback is encouraged and acted upon
You don’t need a ping-pong table. Just honest communication, respectful leadership, and clear expectations.
5. Know the Laws That Apply to You
Employment laws vary based on company size, location, and industry. A fractional HR consultant can help you understand exactly what regulations affect your business and help you stay compliant.
If you’re not sure where your vulnerabilities lie, a quick HR audit is a great place to start.
Let’s Make Sure You’re Protected
At Seay HR, we’ve proudly helped hundreds of businesses with their HR needs and prevented costly legal issues before they even happened.
From policy reviews, compliance audits, manager training, and employee handbook help, we’re here to help you protect what you’ve built.
Contact us today to assess your HR needs. Let’s make sure your business is protected, prepared, and positioned to grow.
