Three Common Small Business Lawsuits and Ways to Protect Your Business

You might think your business is too small to become the target of a lawsuit, but that’s wishful thinking. No matter the size of your business or industry, business owners from all walks of life and industries find themselves the target of legal claims. However, small business owners usually don’t have the same resources to aid in their defense as their larger counterparts, making litigation stressful and anxiety-inducing. 

Protect the business you’ve worked so hard to build by familiarizing yourself with three common types of lawsuits facing small businesses and learning the steps you can take to reduce your risk of being taken to court. 

Client and Employee Injuries

Landscaping job sites and nurseries can be busy, with employees using heavy equipment and hand tools to transfer supplies — such as plants, stone or fencing — from your company trucks to your client’s property. If a stray piece of equipment gets in the way, such as a forgotten rake or misplaced ladder, tripping an employee or client and causing them to break their leg, you could become the target of a costly personal injury lawsuit.

According to Forbes Advisor, personal injury lawsuits almost always end in settlements. While compensation can vary depending on the facts of the case, a prior study conducted by the Bureau of Justice Statistics, which is cited in the Forbes article, shows the median award for all cases studied as $31,000, while the median award in premises liability cases — where owners or landlords were held liable for injuries sustained due to the condition of the property — was $90,000.

As such, third-party injuries and any related lawsuits can significantly impact your business’s bottom line. Thankfully, you can secure an insurance policy that protects your career and company against various liability claims arising from your daily business operations, including bodily injury, property damage and personal injury. While the potential costs of lawsuits can be considerable, general liability insurance can help cover medical and legal expenses, such as medical treatment, attorney fees, settlements and court-ordered judgments.

Additionally, workers’ compensation insurance can protect your business when an employee is hurt or becomes ill due to workplace conditions or inappropriate practices. Being out of work and in pain due to a workplace injury is stressful, and employees often pursue litigation to make up for their losses and support their families. By carrying workers’ compensation insurance — which is mandatory for most employers in Michigan — you can help ensure your business is protected against lawsuits and your employees get the medical care they need.


Employment-Related Lawsuits

As an employer, you’re held to certain federal laws that govern your employment practices. These laws, overseen by the U.S. Equal Employment Opportunity Commission (EEOC), make it illegal to discriminate against a job applicant or employee due to their race, color, religion, sex, national origin and other protected characteristics. According to the EEOC, these laws apply to all work situations, including hiring, promotions, wages and more.

Creating or failing to address a toxic work environment where employees can openly harass or discriminate against others is a guaranteed way to end up with a costly and reputation-damaging employment discrimination lawsuit. The EEOC reported 73,485 employment discrimination allegations filed in 2022, with employers paying out $342.1 million in monetary benefits — a figure that does not include payments awarded through litigation.

Common EEOC employee allegations can include:

  • Retaliation

  • Sexual harassment

  • Wrongful termination

  • Discrimination based on age, sex or race

  • Invasion of privacy

Remember that an individual doesn't have to be an official employee to sue your business for discriminatory practices. Your hiring practices should be fair, and the perception that they're not can cause a prospective employee to file a suit against you without ever being on the payroll.

Create clear, comprehensive and enforceable standards to help protect your business against employment-related lawsuits. A company code of conduct is a foundational document for any business, outlining your expectations regarding employee behavior and the discrimination policy. Training your managers and staff on essential rules, as well as any standards for hiring, dismissal and workplace harassment of employees, can help reduce misunderstandings and inappropriate employment changes while ensuring any employment-related business decisions are consistent. Employment Practices Liability Insurance (EPLI) is a robust insurance solution that can help safeguard your business against discrimination lawsuits. This essential coverage provides policyholders with an attorney for their defense and covers any settlements or judgments that might arise from the suit. However, this coverage won't apply to criminal conduct, fines, civil penalties or other losses.


Breach of Contract

Contracts are essential business documents used to establish the scope of work, terms and timelines. While contract breaches are relatively common in the business world, failing to respond appropriately could put you in a legal mess.

Imagine your team is at a job when you get a phone call from a frantic employee. You're halfway through a week-long job when your clients return from vacation and hit you with unexpected news — they're going to sue your company for breach of contract. It turns out they wanted their backyard oasis created using salvaged and environmentally friendly materials; your team failed to understand the contract terms and instead opted for whatever they could find at the best cost, hoping to impress the client with their cost-saving measures.

So, how do you handle unhappy clients who want their entire project cost reimbursed for a contract breach caused by a professional mistake? These tips can help:

  • Contact the other party as soon as possible – While it may be tempting to put your phone on mute and let your employees handle the issue, quickly responding to client dissatisfaction can illustrate how seriously you take their concerns and reduce the chance they'll take you to court.

  • Consult an attorney – Contracts are complicated, and the steps necessary to resolve alleged breaches are even more so. By contacting an expert, you ensure you have the perspective required to understand your upset client's legal position. This is essential to find ways to resolve the issue outside of court, including the possibility of any settlements or damages.

  • Secure errors and omissions insurance – Even seasoned professionals make mistakes. With errors and omissions (E&O) insurance, you can find peace of mind for your career, business and employees in the event of a professional blunder. Business owners usually carry E&O insurance as supplemental liability insurance; these policies cover the hefty legal costs associated with lawsuits, including the cost of an attorney and any judgments against you.

Lawsuits are growing increasingly common, and as a small business owner, you must have the proper protections in place for the longevity of your business. Contact MNLA’s insurance expert, Ashley Thomas, for a free risk analysis to learn more about your unique business liability exposures. Find information about available coverage at or contact for a coverage review. 


The information contained herein is offered as insurance Industry insight and provided as an overview of current market risks and available coverages and is intended for discussion purposes only. This publication is not intended to offer legal advice or client specific risk management advice. Any description of insurance coverages is not meant to interpret specific coverages that your company may already have in place or that may be generally available. General insurance descriptions contained herein do not include complete Insurance policy definitions, terms and/or conditions, and should not be relied on for coverage interpretation. Actual insurance policies must always be consulted for full coverage details and analysis. Insurance brokerage and related services to be provided by Gallagher Affinity Insurance Services, Inc. (License No. 100310679 | CA License No. 0783129).

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