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Wrongful Termination Lawsuit? What You Should Know as a Small Business Owner

The most common type of lawsuits against small business owners is employment discrimination and wrongful terminations. Usually, regardless of the intent, these lawsuits occur due to mismanagement, oversight, or lack of understanding of legal jargon.

Andrey_Popov/Shutterstock: Wrongful termination puts the average claimed amount received by employees somewhere around $37,200, typically ranging from $5,000 to $80,000. Most of these cases are preferred to be settled out of the court to avoid damaging an employer’s reputation.

Knowledge of compliances applicable, consistency of business practices, and reliable resources will be your best bet to navigate the complicated world of regulations and laws.

Applicable Regulatory Framework

Matters get complicated as both state and federal laws may be applicable in the case of wrongful termination. Inconsistency between different state laws can also be challenging.

A small business owner cannot possibly have in-depth legal knowledge. Still, it pays to have a basic understanding of top regulations applicable to your company, e.g., most of the claims are filed under the Equal Employment Opportunity Act.

It bodes well for small businesses to have a robust system so they can stay on top of various laws, regulations, and rules.

Claim Types

PhuShutter/Shutterstock: Different types of claims

Lawsuits can result from several causes like a breach of contract, inconsistent application of business policies, a hostile work environment, or discrimination based on race, gender, religion, disability, pregnancy, or more.

It also becomes imperative to note that retaliation cases are on the rise. According to a report, in 2017, 45% of the lawsuits filed under workplace discrimination were retaliation cases as compared to 22% in 1997. While these numbers specifically do not pertain to wrongful termination, it is essential to be aware of the risks arising out of the process.

Precautionary Measures to Undertake

LeoWolfert/Shutterstock: Regulatory Framework

To avoid being sued at all costs, review internal policies and documents, and the process of termination must be fool-proof.

If you already have a procedure in place, review it to find out if it is consistent with the actual practices in your business. Also, make sure that the paperwork is as per the applicable federal and state laws. Revise either the documents or your actions to stay consistent with the regulatory framework.

Devise a checklist containing all the measures that need to be undertaken in case of employee termination, along with the required documentation that needs to be prepared at every step. If your policies allow for a probationary period for corrective actions, ensure that the employee understands, on paper, that ‘lack of performance’ will result in dismissal from the job. Verbal communications should not be treated as “proof”; hard evidence always leads to clarity and transparency.

If the unfortunate situation of firing an employee does arise, have an unbiased entity like a Human Resources executive or any other informed person in the room as a witness. Make a clear and short statement informing the personnel of their dismissal without being “overly specific.” It might not be easy, but maintaining professionalism will save both you and your employee much grief.

Measures to Reduce Risks and Improve Compliances

The ideal way to proceed is to build a team that tracks compliances explicitly and is aptly qualified and experienced to oversee the process. However, early in the business, this might prove to be very expensive. Another alternative is to use Professional Employer Organization(PEO) as they offer expertise in federal and state laws and HR compliances.

These days, several HR management apps are also emerging in the market, but they may not contain the option to oversee compliance of laws.

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