Every small business owners nightmare is coming true for you. Your company is being sued by a former employee, vendor or client. Hoping that it would never happen you secretly always worried about being sued and today you received a letter. In fact it was one of your greatest fears when you decided to start your own business.
No matter if it’s a lawsuit filed by a former client, vendor supplier, ex-employee lawsuits will cost you money no matter whether you lose or win.
You probably feel upset, angry, and overwhelmed and unsure what actions to take next. You want to keep your business afloat and your brand reputation positive. Here are the necessary steps to handle the situation suggested by attorneys, and will legal experts.
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Are you actually being sued?
You may not be sued. You may have received something called a demand letter, which is not a formal legal lawsuit. It is a preliminary step from a person who is making a complaint against you and asking for restitution and correction. This letter is for your attorney to review and respond via formal letter. Most of the time when these types of demand letters are replied with the facts an amicable solution and settlement is reached by both sides, without having to proceed to an actual lawsuit.
Formal Complaints Summons
Now you are being sued, if you receive a formal complaint document sometimes delivered by a Sheriff or other legal representative who is named as the agent for service of process. It will be accompanied with a summons. This summons is proof that you are indeed being sued in a court of law. It will also detail the claims being made against you, tell you the deadline and indicate which court will hear your lawsuit.
Don’t be silly and try to dodge receiving this document. You can still be sued even if you do not take possession of this summons. Many state courts permit plaintiffs to publish the complaint in a newspaper, and that will constitute serving you the summons so that the lawsuit can proceed without your acceptance of the documents.
Step #1 – Have an attorney review the lawsuit
Upon receipt of the legal papers immediately forward them to a licensed attorney for them to review and counsel you on the situation. Your lawyer will check that the information listed on the lawsuit such as the caption, service information list the proper entity, i.e., your business LLC or your corporation. Because if this is incorrect, this clerical error may be able to allow you to dismiss the lawsuit entirely.
Depending upon your situation your attorney may after allegation review put a preservation order or litigation hold in place. This legal action states that all company financial data about the issue is to be preserved and compiled. These documents include letters, correspondence, emails, voice mail messages, and photographs.
Tell everybody in the company not to destroy any documents until they have consulted with your attorney. More than once a company has lost precious documents that could prove their innocence by a simple administrative mistake of the paper destruction policy.
Step #2 – Avoid direct communication with the plaintiff
Once the lawsuit is filed you are best served to avoid direct negotiations with the parties concerned because often your statements can be taken out of context and used against you to your detriment. Your attorney will contact their attorney and be the liaisons for your legal discussions.
Before a lawsuit is filed is the time to try to resolve these contentious issues to avoid the legal hassles of a formal trial.
In some cases, you will need to continue doing business with that person, perhaps an employee, or another vendor. Make it crystal clear that you will not be discussing any portion or matters related to the lawsuit with them.
Notify your insurance company
Contact your insurance company right away and inquire about the coverage of your business insurance for lawsuits. Most general business liability policies cover third-party injury claims and accusations of the fat defamatory remarks, i.e. slander about, competitive business. If you purchased a good professional liability insurance policy, you are presumably insured for the event that clients allege your work has created financial losses for their firm.
Employee suits are covered by insurance for employment practice liability and are sometimes included in your worker’s compensation policy.
If your policy coverage applies it will pay for your attorney’s fees, court costs, and the judgment or settlement if you are found liable.
It’s important to contact your insurance company right away because if you do have coverage for this type of lawsuit your insurance provider will assign and pay for legal counsel. They will take over handling the lawsuit on your behalf.
Even if your insurer pays and processes the lawsuit be sure to keep your business attorney informed of all actions against your company.
Step #3 – Make decisions and proceed
Most lawsuits filed in the United States have deadlines for written responses, usually 30 days.
Your attorney will need to respond with the following information by that deadline:
- denial or admittance of the allegations by the plaintiff
- defenses and counter claims against the plaintiff and other defendants
- if you want a jury trial or alternative resolution such as an out-of-court settlement.
To properly prepare your reply to consider these points:
- fully understand the nature of the claim
- weigh the potential liability and business exposure
- consider the costs of litigation as compared to a cash settlement resolution
- review the litigation plan and exit strategies
- explore alternative dispute resolution’s
Depending upon the details of the case, your attorney may suggest filing a motion to seek an immediate dismissal of the complaint instead of answering the plaintiff’s attorney. The judge will then either grant or deny your motion.
Don’t ignore the lawsuit
If you stick your head in the sand, like the fabled ostrich, you will be way worse off than if you take proper action. Sure it’s upsetting and scary when you or your business is sued. Ignoring the lawsuit will not make it go away and it will certainly make it worse and cost more in the long run.
In fact, many lawsuits are won by plaintiffs because companies failed to respond within the 30-day deadline. Sometimes the judge rules in favor of the plaintiff and the full judgment amount for your company to pay will be sent to collections.
Check out my guide on how to start your business right with tons of useful tips I learned by successfully starting, building, and selling multiple companies.