March 2009

A March 2007 study from the Pacific Research Institute titled Jackpot Justice: The True Cost of America’s Tort System, stated that lawsuits in the U.S. cost the American public an estimated $865 billion per year. Much of this litigation was needless or stemmed from nuisance lawsuits which largely could have been avoided. In these litigious times, business owners need to sit down and analyze their risk exposure.

Here are six proactive steps that every business owner can implement to reduce their liability resulting from nuisance lawsuits:

• Form an asset protection plan by designing a list of all the potential assets you stand to lose from a lawsuit. Take a hard look at your current insurance coverage. Make a point to sit down with both your insurance agent and lawyer to limit your exposure from both an insurance and legal perspective.
• Separate your personal assets from business assets by setting up a C or S corporation or else consider a Limited Liability partnership or even a Limited Liability company. Although this action does nothing to limit lawsuits, you might be able to remove your personal assets from a lawsuit settlement. Consider setting up a qualified retirement plan as federal laws offer protection from creditors for such accounts. However, remember that some states might not include IRAs so seek qualified advice.
• Purchase the right Liability insurance for your business as this can be the best investment you can make. Seriously consider buying Excess or Umbrella coverage as you can easily get an additional $1million coverage for a very inexpensive rate. Today, almost every business that has employees should consider Employment Practices Liability Coverage (EPL) This form of insurance covers current employees, past employees, potential employees, customers or clients from employment related civil actions of discrimination such as gender, age, race or disability, sexual harassment litigation, wrongful dismissal actions, breach of contract, retaliation and other claims brought against your company. Due to the significant rise in such claims, this relatively new insurance coverage has taken on significant importance for companies of any size in recent years. Be sure to contact us about these and other coverages for your company.
• Form your own risk management plan to eliminate unnecessary risk in your workplace. Be proactive in the house cleaning for your company and eliminate hazards by performing repairs or maintenance as they arise. Instill strict and enforceable policies to protect the safety of workers and the public from harmful situations that can quickly translate into a needless lawsuit.
• Specify your policies to clarify everything and anything that could result in a lawsuit. An employee handbook should be issued to all staff. Have them read the handbook before they start work and sign an appropriate form stating they have read and understand the material. Ensure any policies directed to your customers or general public are clearly visible and explicit. Incorporate your customer policies in all your promotional material. Don’t trip yourself up by making promises which can’t be kept. Train all your staff so they clearly understand any policies that apply to customers or other relevant third parties.
• Consider taping phone conversations so you have a record of what your caller is inquiring or complaining about. This also provides you with a record of how staff are responding to the caller. Remember that if you decide to take this approach, you must initiate the call with a notice that the call is being recorded. Clear this with your legal advisor first.

These are but a few simple steps that any company can take to reduce their liability exposure from a host of costly nuisance lawsuits.

Employment background checks are not just for high tech companies or executive level management any more. A thorough background check should be performed to avoid making any assumptions about an employee’s history.

To help you get started, here are some essentials of a complete background check:

Current address – Confirm a current address through a telephone directory, confirmation with landlord, rental or mortgage company, or county tax office.

Former addresses – Confirm former addresses through former employers, credit agencies, or by contacting the landlords of former residences. If the applicant resided in another city, state or country, you might use an investigative agency to perform some standard verification.

Other detailed information you might choose to verify is the amount of rent or mortgage paid, whether it was paid on time, details of complaints made against the applicant, whether their former residence was left in good order when vacated, whether they left on their own accord, and any eviction details, if applicable.

Current and Former Employers – Employers are reticent about providing too much information on current or former employees since negative references occasionally result in lawsuits. Most employers, however, will verify an employee’s job title, length of employment, starting and final salary, and reason for leaving. You might obtain resume data on old application forms to compare with the resume or application of the person you are considering for the position.

A more detailed background check might include obtaining the names of the applicant’s immediate supervisor or manager and trying to establish contact with them. Interviews can be conducted by phone or in person. Since there is a fine line regarding invasion of privacy, obtain the applicant’s permission in writing if necessary. Protect your liability exposure by discussing the legality of the background check with your company’s lawyer beforehand.

Education – Transcripts from most secondary institutions can usually only be obtained either by the applicant themselves or through a signed release that includes enrollment dates, department and subject of study or major, student identification number or social security number, and date of birth. A photocopy of the degree or certificate should be obtained for verification, if possible. Contact the applicable registrar’s office and they will be able to specify what is required to release information.

Additionally, verify the college is legitimate. Fake diploma mills offer degrees from fictitious institutions possessing names very similar to known established educational institutes, so do not assume you recognize the name.

Credit Check – A credit check is usually required in those situations where the position involves security, fiduciary responsibility, or bonding. Verify that all information provided in the credit check conforms to the information provided on the application. Poor credit references should be cross referenced and authenticated for accuracy.

References – All personal references listed by the applicant should be contacted. If it is a basic employment check, the integrity of the applicant’s personal character can be established by phone. Detailed checks might necessitate personal contact to meet with the references face to face, as the references given might provide information prejudicial in favor of the applicant.

Miscellaneous – Additional items which could be of relevance include a criminal records check performed in all states listed on the application form, driver’s abstracts and records check on civil suits.

Be methodical and take the time to perform a thorough back ground check that satisfies the need of your business.

With the U.S. economy in recession, companies are trying to make up for declining sales by reducing expenses. Workforce reductions, though they might improve short-run profits, could also cause long-term problems if the firm does not handle them with care. Angry former employees could look for justification for legal action. The employees who remain will take on extra work with no additional compensation, while they deal emotionally with the loss of colleagues and fear that the job cutting will eventually hit them. Consequently, companies must approach layoffs with caution.

The company must first determine whether a layoff is the best option. Although it might reduce costs quickly, it could also cause the company to dismiss valuable workers. This will hurt long-term productivity, lower the morale of the survivors, and wipe out valuable institutional knowledge. There is also a risk that a layoff will affect older or minority workers unfairly, which could lead to discrimination complaints. Therefore, the company should look at alternatives such as hiring and wage freezes, adjustments to employee benefits, not replacing workers who leave or retire, and job sharing.

If the company decides that it must reduce its workforce, several careful steps are required:

• Establish a specific goal for the layoff to achieve, such as a dollar amount of savings or number of positions.
• Identify those job functions and skills that it will need to operate successfully after the layoff.
• Set a timetable so that the reduction has a clear end.
• Comply with federal and state labor laws.
• Determine which jobs are unnecessary and eliminate them.

When determining which employees to dismiss, the company may legally use criteria such as length of service with the company, the necessity of a certain job classification, employee status (i.e., part-time or temporary), or employees’ performance records. Management should review candidates for dismissal to ensure that the cutback does not disproportionately impact classes of employees protected by law. If managers can find no other compelling business reason for terminating those employees, they must seek out alternatives.

Once managers have made selections and the decision to proceed, they must inform the affected workers in a professional manner. They should be able to explain clearly the reasons for the action; workers’ entitlement to benefits such as severance, health coverage, and others; and post-employment services available to the workers, such as outplacement. The workers might express emotions ranging from stunned silence to rage; the managers must be prepared to deal with their reactions in a businesslike manner. Remaining employees will have concerns about their own futures and the firm’s outlook. Management should, to the extent possible, explain the reasons for the layoff, the likelihood of additional job cuts, and the business goals the firm seeks to achieve through the layoffs.

The company must take particular care when the layoff involves older employees. Severance packages usually require the employee to waive his right to press a claim under federal law. However, regulations impose procedural requirements that an employer must meet before a court will consider the waivers valid. Companies must take special care to meet those requirements.

Shrinking a company is an unpleasant prospect that no manager relishes. Employee lawsuits might well result from a workforce reduction. However, if the firm handles the action with care and sensitivity, it can make such claims less likely and will be in a better position to defend itself against claims that do arise.