Common Lawsuits Small Businesses Face—And How to Avoid Them
- Dennis Sapien-Pangindian
- Jul 14
- 3 min read
Introduction
Running a small business comes with risk. You wear many hats—founder, operator, manager—and often legal protector. But one lawsuit, even if it’s defensible, can drain your time, money, and energy.
The good news? Most lawsuits small businesses face are avoidable with some strategic foresight. Below are some of the most common types of litigation small businesses encounter—and practical tips on how to reduce your risk of ending up in court.
1. Breach of Contract
The lawsuit: A customer claims you didn’t deliver what was promised. A vendor says you failed to pay. Or a service provider accuses you of violating your agreement.
Why it happens: Ambiguous contract language, handshake deals, or missed deadlines often lead to disputes.
How to avoid it:
Always use clear, written contracts
Spell out payment terms, scope of work, timelines, and remedies
Avoid copy-paste contracts from the internet; tailor them to your deal
Keep organized records of communications and payments
2. Employment-Related Claims
The lawsuit: A former employee sues for wrongful termination. A contractor says they were misclassified. Or someone raises a wage-and-hour complaint.
Why it happens: Startups and small businesses often lack a formal HR process or written policies.
How to avoid it:
Know the difference between a W-2 employee and a 1099 contractor
Provide offer letters, job descriptions, and at-will disclaimers
Follow wage laws and overtime rules- Document performance issues and disciplinary actions- Create an employee handbook and anti-harassment policy
3. Customer or Client Disputes
The lawsuit: A client alleges your product or service caused harm. Or a customer sues for dissatisfaction, breach of warranty, or even emotional distress.
Why it happens: Expectations aren’t aligned—or something truly went wrong.
How to avoid it:
Use terms of service or service agreements to limit liability
Include clear refund or dispute resolution policies
Train your team in customer service and documentation
Address complaints early and in writing
4. Intellectual Property ("IP") Infringement
The lawsuit: Your logo is too similar to another brand’s. A competitor accuses you of copying content or code. Or you face a cease-and-desist over your business name.
Why it happens: IP is often an afterthought during the rush to launch.
How to avoid it:
Conduct a trademark search before choosing a name or logo
Don’t use stock images, music, or software without proper licensing
Require work-for-hire or IP assignment agreements from freelancers
Register your own trademark, if possible
5. Premises Liability or Personal Injury
The lawsuit: Someone slips and falls at your storefront or office. Or a delivery person claims they were injured on your property.
Why it happens: Accidents, poor maintenance, or inadequate safety policies.
How to avoid it:
Maintain a safe, well-lit, and clean environment
Post warning signs (e.g., wet floor, stairs)
Train staff in basic safety procedures
Carry adequate general liability insurance
6. Vendor and Supplier Disputes
The lawsuit: A vendor sues for unpaid invoices or a supplier accuses you of breaching exclusivity.
Why it happens: Lack of documentation, verbal agreements, or poor communication.
How to avoid it:
Use purchase orders, invoices, and supply agreements in writing
Clarify expectations around delivery timelines and pricing
Pay on time or negotiate in writing if issues arise
Final Thoughts: Lawsuit Prevention Is Risk Management
Litigation is sometimes unavoidable—but most small business lawsuits start with misunderstandings, bad documentation, or avoidable mistakes.
You don’t need to be lawsuit-proof, but you can be lawsuit-prepared. Start by:
Using strong contracts
Getting HR policies in place
Training staff to handle risk
Buying appropriate insurance
Talking to legal counsel before problems escalate
Your business doesn’t need a legal department to stay protected—it just needs a legal mindset.
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