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Staying Out of the Courtroom: Is Being Sued Inevitable? Maybe. Here’s What You Should Know If the Gavel Drops

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“See You in Court.”

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Today, that’s just a fancy way of saying, “Goodbye.” Unfortunately, that’s often the harsh truth when your employees, your customers or government agencies utter that short but terrifying sentence.

So, how can you stay out of court? And, how do you keep from panicking if and when someone says those ominous words? Let’s start by describing some of the types of lawsuits you could face as a tire dealer and then finish off with some tips on hiring and paying an attorney.

 

Acknowledge the Risk

Six of every 10 U.S. businesses will be defendants in emploment-practice suits, according to James Scheinkman, partner at the Irvine, Calif.-based law firm Snell & Wilmer. He adds that small businesses tend to live in denial of this key fact, and they “have to realize they can get sued just like big businesses, so they must take appropriate steps.”

Odds are, most small businesses will be sued at some time or another. Of course, large suits get the most attention. Currently, Wal-Mart is entwined in a class-action suit involving nearly 230,000 current and former employees. 

The suit charges that Wal-Mart managers forced employees to work without promised rest or meal breaks. According to Wal-Mart’s employee handbook, workers are entitled to two rest breaks, plus a meal break per shift. Plaintiffs claim some hourly Wal-Mart employees were locked in the store overnight and forced to continue working after clocking out.

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About 20 such wage-and-hour cases are pending against Wal-Mart.

Another is a sex-discrimination suit involving 1.5 million female workers who say they were denied raises and promotions. The suit states that 72% of Wal-Mart hourly workers are female but only a third of the firm’s managers and supervisors are women.

Harassment on the job is another quagmire for retailers. Failing to prevent or investigate workplace harassment is among the top reasons employees sue, according to Robert Goldberg, legal counsel for NARDA, an appliance dealers association. Every business should have a written harassment policy, reviewed regularly with employees and enforced, he says.

 

Complaint Du Jour

Workers can also initiate lawsuits alleging that they are being short-changed in overtime pay. Called the “complaint du jour,” overtime suits now exceed those claiming job discrimination.

Stakes can be high in overtime litigation. Pacific Bell settled a suit for $35 million. On the books since the 1930s, overtime rules require payment of time-and-a-half for work beyond 40 hours a week. 

Exemptions include managerial and professional workers, and plaintiffs’ lawyers say employees were being improperly categorized by the company to save on labor costs.

United Parcel Service (UPS) in California is the latest firm to run afoul of overtime laws, agreeing to pay $18 million to 6,000 part-time employees. Courts found that UPS classified employees as managers (exempting them from overtime pay) but failed to pay them a state-mandated $2,340 a month required for such exemption.

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Beware of Customer Lawsuits

Suits brought by customers are not as plentiful as those brought by employees, but they can be more interesting. Take the matter of being penalized for “shopping while black.” This is akin to the ®driving while black® complaints about police by African-American drivers.

Such a racial profiling case in the recent news was against Childrens’ Place, based in Secaucus, N.J. One employee protested that she was told to shadow black customers in hopes of preventing theft. She also was instructed not to give them large shopping bags or to invite them to apply for store credit cards. The Massachusetts Commission Against Discrimination sent African-American “customers” to investigate and, subsequently, the retail chain agreed to settle.

Some claims of retail racism involve not shoplifting policies, but perceived differences in customer treatment. One such case was brought by an African-American seeking to return a pair of   scratched sunglasses. She was refused the return for not having a receipt, but later, a white friend successfully returned them for her. Settlement with the store required training employees on diversity sensitivity.

 

Big Brother is Watching

What about government regulations and the potential lawsuits that can result from not following them? Small business spends $7,000 per employee annually to comply with federal regulations, 60% higher than that paid by businesses with 500 or more employees. Most costly are environmental regulations and paperwork associated with tax compliance.

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So, are you starting or operating a small business and think you don’t need to know much on the regulatory front? If so, you’re wrong. Here are just some of the types of issues that small-business owners must grapple with that often involve regulatory controls:

®′ Naming your business requires carefully avoiding copyright infringement.

®′ Penalties for not meeting government licensing and permit requirements can include fines or even barring from business.

®′ Establishing a good retirement plan can slash your taxes, but a bad one can send you to court.

®′ Tax filings and withholdings can land you in front of the bench.

®′ Hiring and managing employees always involves legal risk.

®′ Contracts ®“ including those with suppliers, employees or customers ®“ can be legally “sticky” at times.

Where can you turn to for business licensing information? First of all, contact your trade associations and then individuals in your field who have “been there and done that.”

Also, check the government section in your local white pages and the Chamber of Commerce. Chatting with real estate agents and building contractors can also be helpful.

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Note that most laws are state-specific, meaning the law of the state in which your business is located governs most legal issues.

 

Prevention is Key

When most people first think of attorneys, they think costs ®“ high and escalating.

So, many businesses never hire an attorney until they are sued. But avoiding legal problems in the first place costs less than hiring counsel to solve them. Typical situations in which it is best to consult a lawyer before trouble occurs include: signing contracts, obtaining financing, negotiating a lease, hiring employees and doing business in an area in which heavy government regulation is prevalent.

Of course, you could handle all legal affairs yourself. You can always represent yourself in a lawsuit. But don’t forget the old saying: “He who acts as his own attorney has a fool for a client.” It’s true you can save money by handling minor legal issues on your own, but tread this path carefully.

Here’s a tip on getting cheap or free legal advice: Check with area law schools. Several offer legal clinics for small businesses. Or, turn to the American Bar Association for advice (www.abanet.org) or the National Federation of Independent Business (www.nfib.com), which offers many tips on lawyer selection. Another great source could be colleagues who have already been through the courts.

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Consider Mea Culpa

If you have to defend yourself, attitude ®“ more specifically, attitude as perceived by the plaintiff, judge and jury ®“ is important. Amazingly, a simple “mea culpa” ®“ an acknowledgement of error ®“ can help. A University of Missouri survey found that mea culpa worked in hypothetical bicycle accidents with relatively small claims. Plaintiffs were asked if they would accept settlement for just medical expenses. Almost three of four said they would if the defendant gave a full apology. In other words, just saying you’re sorry can help bail you out of an expensive lawsuit.

Your lawyer will help you decide whether defending ®“ or even initiating ®“ a suit is worth the filing and procedural costs. Most commercial lawsuits are settled before going to court. And remember that, even with a victory, cost can be exorbitant, and you may never collect an award since debtors can protect themselves in many ways. So, usually, it is better to stay out of the courtroom in the first place.

 

Selecting an Attorney

Nevertheless, if you do find yourself in court, one of the most important things you can do to prepare is to select a competent attorney. When interviewing a potential lawyer, it’s helpful to start with the following questions:

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®′ What experience do you have representing small businesses?

®′ Have you handled situations like mine?

®′ Will you handle my case personally?

®′ What are your rates and the estimated total cost?

®′ Can I have the fee arrangement in writing?

What are the expectations of the client and lawyer as litigation proceeds? You can expect, in fact insist, that you are kept informed about the status of your case, up to the minute. You should also require that your phone calls and questions be answered promptly. The attorney must follow your directions and be candid about the situation and the prospects for success or failure.

Your attorney also has some expectations. First is that you discuss the facts of the matter without withholding information. Further, your attorney may insist that you answer all of his questions fully and honestly, including those facts about the case that reflect poorly on you. Never be coy or lie because it will come out eventually if the case goes to trial. Finally, your attorney will require that you be respectful of his time and pay the agreed-upon fee.

Then, of course, there’s the big question: How much will it cost? Lawyers commonly charge an hourly rate ®“ approximately $60 to $300-plus per hour. Rates vary by region, type of case and experience of the lawyer. There are no guidelines or national standards for hourly fees.

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Of course, you’ve heard of contingency fees, but these usually are not applied to day-to-day business lawsuits. Instead, they are primarily for personal injury or workers’ compensation cases.

In contingency-fee arrangements, a lawyer typically agrees to be paid only for a win, and then, a fixed percentage (usually 33%) of the recovery amount. Win or lose, though, the court filing fees are your responsibility.

 

Relief May Be on the Way

Congress may soon pass legislation limiting class-action suits and large damage awards, so there may be some light at the end of the tunnel for businesses. The bill would move many class-action suits out of state courts and into federal. And some federal judges are taking a very cynical view of multimillion-dollar judgments.

Small businesses, for the most part, are never involved in class-action suits. Larger, multi-location dealers, however, may face employment-related class-action suits. All the same, any legislative action that reins in out-of-control, sue-happy plaintiffs will help businesses of all sizes.

Regardless of what happens politically in the near term, it’s still a good idea to make sure you are complying with labor laws and federal and state regulations. If you don’t have one already (what’s keeping you?), it’s a good idea to select an attorney now to represent you should the need arise in the future.

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Even if you do everything suggested in this article, the phrase “See You in Court” will still make you nervous. But it won’t automatically mean ®The End.®

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