What No Business Owner Will Ever Tell You (Part 1)

It’s amazing to me how much business owners are willing to help each other.  In fact, we have never lived in a more collaborative environment, where the phrase, “a rising tide lifts all boats,” has really been put into practice.  Recently, I was asked by the SBA to be involved with a program called the Streetwise MBA program and as I looked over the materials, I noticed a myriad of a great, strategic tools…  But there was something missing – something that I find missing in day to day conversations with business owners, and I started to wonder why.

Is it because this topic is embarrassing, or shameful even?  Are entrepreneurs so image-focused that they don’t want people to know about any “issues” they might have with their company?  I think it could be a combination of the two, along with the fact this important facet of business is completely overwhelming to Owners and CEOs.

I’m talking about GETTING SUED by an employee.

Yes, Fortune 500 companies deal with this all of the time, but smaller companies do too! And small businesses are often the ones left unprepared to deal with such a situation.  Our culture is one of litigiousness, and without the proper safeguards and knowledge, an entrepreneur can be put out of business in an instant if an employee sues them and they aren’t properly protected.

This happened to me.  Mercifully, I had enough money to fight it – but a lot of companies don’t.  I’m going to go into detail about the insurance failure and how to learn from those mistakes in part two of this series, but for this article, it’s important to talk about the what, why and how of protecting your business.

What: Wage Violation Acts.

Did you know that in the State of Massachusetts, for instance, an employee can accuse an employer of a wage violation, and that that employee can easily find a lawyer to represent them on contingency?  As an employer, no lawyer will take your case on contingency.  Additionally, the employee’s lawyer, under the law, is entitled to full reimbursement of fees (whatever they want to charge) and the employee is entitled to triple damages if the employer is found guilty.  Sounds horrible if you’re an employer, right? It’s only horrible if you aren’t insured correctly.

To the people who say – well, if the employers don’t violate the law, then you won’t have any issues, I say: what if you just have a bad apple that sues you and you have to prove your innocence in court?  It takes, on average, $80,000 to get to a trial in Massachusetts.  So you would need to put out $80,000 plus the time and energy of going through discovery, depositions and a trial just to prove your innocence – and even innocent people can be found guilty.

In my particular case, this employee quit (said I fired her), then went to an attorney and filed a complaint stating that my company violated wage acts.  She offered two claims (contradictory to one another), and was willing to flip from one to the other, depending on how she could make the most money. The total amount she wanted to dispute was $211.  Even with triple damages, that cost doesn’t seem worth disputing – it seems worth it to pay, even if the claims were false. But wait!  The on-contingency lawyer was involved, and wanted his share ($60,000 worth of time) as well.  On top of that, I also had attorney fees to pay in order to defend myself, so that brings us over $100,000 over a $211 dispute. So who is really winning here – the employee making a false claim, or the lawyers?

How: What to do when you’re sued.

First, employers need a good lawyer.  A good lawyer will work with your insurance company from the beginning, and the two of them – together – will ensure you are covered on all angles.  Whether it’s employee contracts, special circumstances related to how you have hours structured, or any nuance exclusive to your business – a good lawyer will make sure you are covered when you get started.

Second, we need good insurance agents.  Though this will be covered in more depth in the second part of this piece, but there are a lot of agents out there and some have your best interest at heart, while others are more concerned about the money that they are able to garner, whether it’s in your best interest or not.

Third, we need to have open conversations with other business owners of the same size. How are they protecting themselves? How have they been burned in the past? And what did they do about it? There is more than one way to make sure you don’t end up in hot water, but the most important thing to educate yourself and understand laws like the Wage Violation Act.

Why does this situation happen?

This situation happens when people feel they have been taken advantage of by a company, when they want to exact a personal vendetta, or when there truly was an egregious violation of the law.  The issue is that it takes money and time to get to the root of why any particular case happens, and that, my entrepreneurial friend, is the problem.  The lawyers who represent these employees know how to exploit these situations for their own benefit.  Because employees have no risk in these cases – they have a free lawyer who stands to make whatever he asks if he is successful – the risk is truly only for the employer, who may stand to lose $100,00 for something that may not even be (and was not in my case) a valid case.

This article isn’t intended to make business owners panic. Rather, it’s just a cautionary tale that both opens the dialogue among business owners, and allows the education around wage laws and other employer concerns to begin.

I wish we as business owners would share our war stories, because if we don’t talk about them, we can’t get better, we can’t protect ourselves and our employees, we can’t protect our businesses.  So next time you get together with other business owners, don’t be afraid to talk about how the business is run, instead of how wonderful your business is. The more real we can be with each other – the better.   Here’s to all of our floating boats!

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