Small Business Lawsuit Survival Guide: 10 Bulletproof Strategies to Keep Your Company Safe

Small Business Lawsuit Survival Guide

Learn the top 10 strategies to safeguard your small business from lawsuits. Stay protected and informed.

June 10, 2024

Lawsuits pose existential threats to small businesses lacking robust legal defense strategies. This guide outlines ten core strategies uniting how California’s sharpest business attorneys safeguard companies against litigation.

Legal Help for all of your legal needs.

Need assistance protecting your small business from lawsuits or other legal issues? Get in touch with us for expert help!

We detail proactive measures, damage control approaches, settlement tactics and more to keep small businesses safe when legal threats strike.

1. Incorporate & Insure to Limit Liability

    • Separate Business and Personal Assets: Corporate structures help shield owner savings.
    • Choose Limited Liability Entities: LLCs and S-Corps offer the most protection.
    • Maintain Corporate Formalities: Hold regular meetings, keep records to preserve limited liability.
    • Obtain Proper Business Insurance: General liability, E&O and D&O policies cover common risks.
    • Review Liability Limits Annually: Ensure coverage matches current operational scope and legal exposures.


    • Mark’s $1M umbrella policy covered a customer slip and fall his general liability insurance excluded.
    • Cynthia’s accountant recommended an LLC over a sole proprietorship to protect personal assets before launch.
    • Angela’s partnership agreement outlined a clear process resolving ownership disputes, minimizing legal risks.
    • Robert’s quarterly board meetings created a paper trail demonstrating proper corporate governance.
    • Jennifer’s professional liability coverage expanded after adding more advisory services prone to negligence claims.

How to Proceed:

    • Consult legal and financial pros on ideal corporate structures for liability protection and tax efficiency.
    • Set calendar reminders for important formality deadlines – annual meetings, registration renewals etc.
    • Meet insurance agents to assess business risk categories and match suitable liability coverage.
    • Keep business and personal funds separate in dedicated accounts to maintain corporate veil.
    • Review entity compliance, insurance needs and asset vulnerability at least yearly with advisors.


    • Which business structure offers the most liability protection? Typically C-Corporations, but S-Corps and LLCs combine safeguards with tax benefits.
    • How much liability insurance should small businesses carry? At least $1M – more if in an industry with high legal exposure.
    • What assets are most vulnerable in a lawsuit? Commonly cash accounts, real estate holdings and valuable equipment.
    • Can insurance cover intentional wrongdoing by owners? No – willful illegal acts remain personal liabilities policies won’t cover.
    • When should I establish a legal business entity? Ideally from the start, but especially before major growth or risk spikes.

2. Practice Proactive Risk Management

    • Identify Vulnerabilities Early: Assess lawsuit and liability risks before incidents.
    • Create Clear Company Policies: Document expectations and consequences in employee handbooks.
    • Vet Potential Partners Carefully: Research litigation history of vendors, affiliates and collaborators.
    • Mandate Workplace Safety: Train on proper protocols; maintain premises to code.
    • Prioritize Regulatory Compliance: Audit practices regularly to meet all relevant laws.


    • Proactive equipment inspections prevented malfunction accidents at Sandra’s factory.
    • William’s code of conduct set clear manager-subordinate relationship boundaries deterring harassment suits.
    • Litigation checks on a potential supplier revealed a pattern of contract breaches to Joyce.
    • Regular wage and hour audits ensured George’s retail business compensated staff legally.
    • Thomas’ sexual harassment prevention seminars built a respectful culture minimizing offensive behavior.

How to Proceed:

    • Conduct internal risk assessments to spot ethical and legal dangers before they manifest.
    • Hire HR specialists to craft compliant, comprehensive workplace conduct policies and training programs.
    • Run litigation history checks on major prospective partners to vet reliability.
    • Take employee safety grievances seriously and remedy potential hazards immediately.
    • Perform compliance audits with counsel annually to verify all practices meet regulations.


    • What are the most common sources of business lawsuits? Partner disputes, employee claims, customer complaints and contract breaches.
    • How often should I update company policies? At least yearly to match evolving regulations and norms.
    • Can small businesses afford full regulatory compliance? Yes, prioritizing prevention saves versus costlier legal defense later.
    • What screening tools help vet vendor litigation histories best? Public records, secretary of state filings and specialized business databases.
    • How do I know if my industry has specific safety regulations? Consult OSHA, trade group guidelines and compliance counsel.

3. Secure Intellectual Property (IP)

    • Register Trademarks and Copyrights: Protect names, logos and creative works officially.
    • Pursue Patents When Applicable: Safeguard qualifying inventions and unique processes.
    • Require Employee & Contractor NDAs: Block confidential information leaks from internal sources.
    • Limit Trade Secret Access: Share proprietary knowledge on a need-to-know basis.
    • Monitor for Infringement: Search for unauthorized IP use online and via industry networks.


    • Registering “Bella’s Cupcakes” as a federal trademark stopped rivals from using Annabelle’s business name.
    • Patenting a unique bike gear mechanism protected Ronnie’s startup from copycats.
    • Having employees sign NDAs plugged leaks when Miguel’s top salesperson left for a competitor.
    • Encrypting files and using code words helped shield trade secrets at Catherine’s biotech venture.
    • An alert notified when counterfeiters tried hijacking Liam’s fashion brand for knock-off sales overseas.

How to Proceed:

    • Register key brand assets with the US Patent & Trademark Office and Copyright Office.
    • Have a patent attorney assess invention patentability and file applications to secure rights.
    • Work with HR to implement strict confidentiality agreements for anyone accessing trade secrets.
    • Limit sensitive data access to select teams and use secure sharing/storage technologies.
    • Set up brand mention alerts on social platforms to track potential infringement in real-time.


    • What business assets are most important to trademark? Logos, slogans, brand and product names.
    • How long does a patent last? 20 years from the application filing date for utility patents.
    • Is it legal to reverse engineer rival products? If obtained legally and no patents bar it, yes. But watch for infringement.
    • What if an employee violates an NDA after leaving? You may sue them and new employers for damages and injunctions.
    • How much do IP registrations cost? Varies, but budget at least a few hundred dollars each for copyrights and trademarks, more for patents.

4. Implement Strict Contract Protocols

    • Insist on Detailed Written Agreements: Handshake deals risk misunderstandings. Get it in writing.
    • Specify All Key Terms Clearly: Spell out scope, deadlines, payment and remedies unambiguously.
    • Include Robust Indemnity Clauses: Assign liability risks to appropriate parties explicitly.
    • Add Alternative Dispute Resolution (ADR): Require mediation or arbitration before lawsuits.
    • Retain Legal Counsel Review: Have a contracts attorney vet agreements and suggest protections.


    • Tiffany’s landlord lease clearly defined “utilities” avoiding a dispute over surprise sewer repair bills.
    • Specifying 90% on-time delivery in supplier contracts gave Rajiv leverage to get remedies for chronic delays.
    • Cross-indemnity clauses shielded Paul’s transportation company from facility accident liability at a client’s warehouse.
    • ADR language requiring arbitration saved Sophia months and thousands when a customer sued over refund terms.
    • Attorney tweaks to Nathan’s independent contractor agreements averted misclassification penalties.

How to Proceed:

    • Adopt a policy requiring formal written contracts for all business deals – no exceptions.
    • Use unambiguous language detailing every party’s duties, timelines and remedies in agreements.
    • Negotiate indemnity provisions that fairly apportion potential legal liability based on respective roles.
    • Insist all contracts mandate mediation or arbitration in good faith before any litigation is brought.
    • Have a business attorney review contract templates and high-value deals to suggest protective revisions.


    • Is a signed proposal or quote enough to enforce a deal? Not ideally – insist on formal contracts detailing full terms.
    • What if a party refuses to sign a detailed agreement? Major red flag – reconsider if they are trustworthy enough to do business with.
    • How much detail is too much in contracts? Be thorough, but focus on material issues – minor minutia can bog down negotiations.
    • What if I’m pressured to accept a bad contract? Prioritize protecting your interests – bad terms often prove costlier than lost deals.
    • How enforceable are online contracts and e-signatures? Generally as binding as ink if proper protocols are followed.

5. Document Everything Diligently

    • Put All Agreements in Writing: Even small deals – you never know what may escalate.
    • Save Key Correspondence: Archive important emails, letters, and notes securely.
    • Track Incident Reports: Maintain detailed records of any accidents, injuries or complaints.
    • Log Employee Interactions: Document hiring, firing, discipline and disputes thoroughly.
    • Back Up Vital Records Offsite: Ensure access to critical files after any disasters or disruptions.


    • Documenting a contractor’s repeated delays proved Valerie’s right to replace them penalty-free.
    • Saving hostile emails from an ex-employee helped discredit his wrongful termination allegations against Denise’s company.
    • Incident reports on a malfunctioning machine convinced a court to dismiss an injury claim against Martin’s shop.
    • Consistent logs of Natasha’s efforts to accommodate a struggling hire justified her non-discriminatory dismissal rationale.
    • Cloud data backups enabled Rick’s architecture firm to fulfill client obligations on time despite a office fire.

How to Proceed:

    • Establish strict company policies requiring written contracts and record-keeping, no matter how small the deal.
    • Use secure cloud storage to efficiently save, organize and share key documents electronically.
    • Provide easy ways for staff to report potential hazards or liability risks and train them on proper protocols.
    • Consult with HR professionals on best practices for fairly and consistently documenting employee matters.
    • Back up vital business data automatically to reputable offsite servers in case of physical damage or hacks.


    • How long should I keep business records? At least 3 years, but 7+ for anything tax or employee-related to be safe.
    • What’s the best way to store key documents? Digitized in the cloud, with locally secured backups of the most critical files.
    • Do I need employees’ consent to keep records about them? No, but it’s wise to inform them you do so and why.
    • What if a staff member refuses to sign an incident report? Document their refusal, but don’t force it – their signature isn’t legally required.
    • Can I be compelled to hand over private business records in a lawsuit? Yes, if deemed relevant in discovery – so save accordingly.

6. Vet Potential New Hires Responsibly

    • Perform Diligent Credential Checks: Verify education, licenses, certifications and work history.
    • Run Compliant Background Screenings: Check criminal records and credit prudently, heeding state and federal law.
    • Conduct References with Discretion: Ask prior employers and contacts about performance and character carefully.
    • Require Integrity Commitments: Insist new hires pledge to abide by ethical conduct policies and practices.
    • Document Hiring Rationales Objectively: Note non-discriminatory, job-relevant reasons for staff selection decisions.


    • Calling universities kept Frank from hiring an employee with a phony degree who later embezzled from another employer.
    • Credit and criminal screenings revealed theft risks in an otherwise impressive applicant to Gina’s financial firm.
    • A past supervisor privately warned Hector an applicant had anger issues, despite being barred from official negativity.
    • Having new sales reps sign ethics pledges deterred Julia’s company from illegal methods that sank a competitor.
    • Keeping interview notes focused on objective job qualifications shielded Maria from a hiring discrimination claim.

How to Proceed:

    • Partner with reputable background check vendors to verify candidate credentials compliantly and consistently.
    • Consult counsel on legal pitfalls in applicant social media reviews, credit checks or conviction policies.
    • Train managers to spot deception when pursuing references and respect confidentiality.
    • Make integrity commitments a mandatory condition of employment in offer letters.
    • Have HR document valid neutral reasons for both hires and rejections to support non-discrimination.


    • What are the risks in screening applicants online? Discovering protected info like religion creates discrimination liability if considered.
    • Can I take an applicant’s bankruptcy into account? For jobs handling money, within reason – but not if old/irrelevant.
    • What questions are off-limits to ask references? Anything related to protected classes – age, religion, pregnancy etc.
    • Do employee ethics pledges really prevent misconduct? Not always, but they set clear rules and establish for-cause firing justification.
    • What if I’m accused of hiring bias but have valid reasons? Documented objective rationales are your best defense.

7. Discipline and Terminate Employees Cautiously

    • Establish Clear Performance Expectations: Define success metrics and behavioral standards for every role.
    • Address Infractions Promptly and Fairly: Don’t delay difficult conversations or play favorites.
    • Follow Progressive Discipline Policies: Use escalating penalties like warnings, demotions and suspensions uniformly.
    • Document Disciplinary Measures Meticulously: Create a paper trail justifying discipline in case of legal challenges.
    • Prevent Retaliation and Discrimination: Never punish or fire for reports of misconduct or protected characteristics.


    • Spelling out objective sales goals in compensation plans made it easy for Ashley to spot and address underperformers.
    • Promptly investigating a harassment claim and suspending the culprit shielded Brandon’s business from a nasty lawsuit.
    • Carolyn’s consistent three strikes disciplinary process defeated a challenge from a fired employee with a checkered record.
    • Doug’s careful logging of a chronically absent technician’s unexcused no-shows secured his unemployment ruling.
    • Despite Emily’s personal animosity, she didn’t fire an outspoken safety whistleblower, averting a costly retaliation claim.

How to Proceed:

    • Provide every new hire a detailed description of their role’s specific performance and conduct requirements.
    • Respond to apparent workplace infractions immediately with fair, objective fact-finding before acting.
    • Apply progressive disciplinary measures outlined in employee manuals consistently to rule-breakers.
    • Have managers create contemporaneous records of all disciplinary conversations, warnings and actions.
    • Train supervisors to avoid any unlawful bias or retaliatory motives when making disciplinary decisions.


    • How much notice should I give before firing someone? Employment at will requires none, but advance warnings are wiser.
    • Can I fire someone immediately for a major offense? Yes, with clear proof, but suspend during investigations when unsure.
    • What if a terminated employee refuses to sign disciplinary paperwork? That’s OK – your records matter more than their agreement.
    • Can I discipline an employee for off-duty conduct? Not usually unless it directly impacts their work or your reputation.
    • What are the biggest discipline documentation mistakes? Missing details, sugarcoating, delays, inconsistency and personal attacks.

8. Purchase Adequate Business Insurance

    • Understand Coverage Options: Common policies cover general liability, property, vehicles, workers comp.
    • Consider Specialty Protection: Professional services, data breaches, business interruption insurance for extra risks.
    • Reassess Needs Periodically: Get more coverage as business hazards and values grow.
    • Pick Reputable Providers: Focus on carrier financial strength, experience and specialization.
    • Avoid Insurance Application Fraud: Disclose operations and loss runs honestly for valid coverage.


    • Greg’s general liability policy paid an injured customer’s medical bills, averting a big lawsuit.
    • Errors & omissions insurance reimbursed Helen’s engineering firm for redoing a botched blueprint.
    • As Ivan’s home-based business took off, he wisely got more property coverage for his expanding equipment.
    • Jessica transferred business coverage to an A-rated carrier with deep trucking expertise for better protection.
    • Always listing his demolition sideline on applications ensured Ken’s entire enterprise stayed covered.

How to Proceed:

    • Sit down with a reputable business insurance agent to match key risk exposures with the right policies.
    • Weigh if special endorsements for professional liability, data breaches or business interruption are warranted.
    • Evaluate annually if coverage limits still match current business assets, income and legal risks.
    • Vet insurance carrier stability, expertise and claims service before buying. Cheaper isn’t always better.
    • Come clean about prior claims and all operations on applications. Fraud negates coverage when it matters most.


    • How much liability insurance does a small business need? At least $1 million – more if you have significant assets or risks.
    • Do I need business insurance if I’m a freelancer or contractor? Yes – you’re still exposed to professional liability and asset losses.
    • What’s the best way to compare business insurance quotes? Focus on coverage details and limits, not just price. An agent can help.
    • Will my personal auto or homeowners’ insurance cover my company? Rarely – you typically need dedicated business policies.
    • What if I can’t afford all the recommended business coverage? Pick the most critical policies, then add others as finances allow.

9. Respond Quickly to Legal Threats

    • Take All Legal Notices Seriously: Engage counsel on any lawsuit, investigation or formal complaint immediately.
    • Preserve Related Evidence: Gather relevant documents, data and witnesses’ recollections right away.
    • Assert Applicable Privileges: Shield sensitive information under attorney-client, work product and other protections.
    • Craft Strategic Responses: Weigh settlement, defensive moves or even counterattacks thoughtfully.
    • Avoid Rash Admissions or Retaliation: Don’t cop to liability casually. Manage whistleblowers lawfully.


    • Luis’ quick consult with an attorney on a frivolous threat letter kept him from panicked damaging disclosures.
    • Melissa’s speedy evidence preservation proved her firm’s innocence in a surprise federal audit.
    • Nico’s lawyer asserted privilege over discussions with his business partner, shielding them in a breakup battle.
    • Olivia’s PR team and counsel collaborated on a deft media response to a crisis, mitigating brand and legal fallout.
    • Pete bit his tongue despite suspicions about Jan’s injury claim, preventing a retaliation suit when he challenged it.

How to Proceed:

    • Contact counsel early and often when facing legal threats. Delays can forfeit critical defense opportunities.
    • Institute a litigation response plan to quickly hold, copy and share all relevant documents, files and records.
    • Let attorneys control sensitive communications and work products to maximize privilege protections.
    • Discuss the pros and cons of various strategies with counsel – resistance, settlement, countersuits etc.
    • Stay professional with all accusers. Assume any related statements may resurface in court.


    • What’s the first thing I should do when sued? Call a business litigator before saying or doing anything else.
    • Can deleted emails or files be recovered in litigation? Often yes, so preserve all records as soon as you anticipate a suit.
    • Are all communications with a lawyer privileged? No. They must be confidential and for the purpose of seeking legal advice.
    • Should I try to settle or fight a meritless case? It depends – raising a strong defense can deter future suits, but quick settlements often cost less.
    • Can I fire an employee I suspect is building a case against me? Not without clear proof of other misconduct. Retaliation is illegal.

10. Learn from Past Legal Battles

    • Analyze Root Causes: Dissect underlying issues behind suits, complaints and investigations to spot patterns.
    • Revamp Problematic Practices: Change approaches that sparked disputes. Upgrade contracts, policies and procedures.
    • Bolster Compliance Weak Spots: Shore up areas where adherence to laws and regulations slipped.
    • Improve Employee Training: Educate staff on lessons learned. Emphasize proper conduct and liability prevention.
    • Refine Crisis Response Plans: Note what worked and what didn’t in managing legal emergencies. Adapt accordingly.


    • After settling a worker classification suit, Quinn audited all contractor relationships and reclassified dozens as employees.
    • Rosa’s restaurant clarified its harassment reporting and investigation procedures after mishandling Steve’s groping complaint.
    • Multiple OSHA citations for scaffold issues led Turner’s construction company to implement a comprehensive safety retraining program.
    • Upon discovering lapses that enabled a data breach, Eileen’s startup instituted strict security protocols and enhanced monitoring.
    • Weathering a PR nightmare over a product defect, Frank’s team adopted a more transparent crisis communications policy.

How to Proceed:

    • Conduct thorough post-mortems with counsel after legal incidents to identify root causes and risk factors.
    • Collaborate across departments to revise standard operating procedures, contracts and manuals implicated in disputes.
    • Assess if additional safeguards are needed to promote statutory and regulatory compliance in problem areas.
    • Convey lawsuit lessons through formal employee training and supervisor talking points. Get signoffs on policy changes.
    • Keep refining crisis management plans as you gain experience. Focus on enhancing prevention and response.


    • What if a legal dispute seems like an isolated incident? Still scrutinize related policies and practices. There may be hidden risks.
    • How much should I tell employees about lawsuit specifics? Be general and focus on go-forward changes. Details may compromise confidentiality.
    • Should I apologize if we were in the wrong? Consult counsel first. Apologies can be admissions of guilt unless worded very carefully.
    • What’s the best way to hold employees accountable for violations? Tie continued employment to certifying policy compliance.
    • How often should I update crisis response plans? At least annually and after any major business changes or legal incidents.


Man with reflective glasses in a tense situation with bullets around.

Did You Know? In 2021, small businesses in the U.S. faced a staggering $160 billion in tort liability costs, according to the U.S. Chamber Institute for Legal Reform. This represents nearly half of all commercial tort costs, even though small businesses generate only 20% of business revenue. This means for every $1,000 earned, the smallest businesses face a burden of $35 in tort costs!

Lawsuits can easily bankrupt a small business. Yet with smart legal strategies and a bit of luck, companies can often emerge from litigation stronger than before. The key is focusing on prevention, developing productive litigation habits, and learning from mistakes.

By following these ten bulletproof tactics, owners can significantly reduce lawsuit risks and improve their odds if one hits. While every case is unique, these general principles pave the way to swifter, cheaper and more favorable legal resolutions.

Need Legal Help? Contact Us

If your small business is facing a lawsuit or investigation, contact our law office today for a confidential consultation with an experienced business attorney.

Legal Help for all of your legal needs.

Contact LawInc 24/7, 365, for any type of legal issue.

Test Your Lawsuit Defense IQ

Questions: Incorporate & Insure to Limit Liability

    • 1. What’s the most important reason to incorporate a small business?
      • A) Boost bank loan eligibility
      • B) Minimize personal asset exposure
      • C) Impress potential customers
      • D) Simplify ownership transfers
    • 2. Which business entity generally provides the most liability protection?
      • A) Sole proprietorships
      • B) General partnerships
      • C) Corporations
      • D) Limited liability companies (LLCs)
    • 3. How much liability insurance should most small businesses carry at minimum?
      • A) $100,000
      • B) $500,000
      • C) $1 million
      • D) $5 million
    • 4. What business insurance covers on-the-job employee injuries?
      • A) General liability
      • B) Property & casualty
      • C) Workers’ compensation
      • D) Professional liability
    • 5. How often should a business corporation hold board meetings?
      • A) Monthly
      • B) Quarterly
      • C) Semi-annually
      • D) Annually

Answers: Incorporate & Insure to Limit Liability

    • 1. B) Incorporation creates a legal separation between business and personal assets, shielding owners if the company is sued.
    • 2. C) Corporations generally offer the most robust liability protections, followed closely by LLCs. Partnerships and sole proprietorships provide little to none.
    • 3. C) While needs vary by industry and size, most small businesses should carry at least $1 million in general liability coverage.
    • 4. C) Workers’ comp covers medical bills and lost wages for employees hurt at work. It’s required for most businesses with staff.
    • 5. D) Corporations must hold at least one board meeting per year, though some do it more often. Minutes provide a paper trail of governance.

Questions: Practice Proactive Risk Management

    • 1. What’s the most common reason employees sue small businesses?
      • A) Discrimination
      • B) Harassment
      • C) Wrongful termination
      • D) Wage violations
    • 2. Which is an effective way to minimize contract disputes with vendors?
      • A) Perform due diligence on their litigation history
      • B) Keep agreements entirely verbal
      • C) Avoid negotiating key terms
      • D) Ignore state licensing requirements
    • 3. How often should a small business update its employee handbook?
      • A) Monthly
      • B) Annually
      • C) Every 5 years
      • D) Never, if well-written originally
    • 4. What type of training helps prevent workplace injury lawsuits?
      • A) Ethics and compliance
      • B) Non-discrimination and anti-harassment
      • C) Occupational health and safety
      • D) Financial management
    • 5. What government agency oversees workplace safety compliance in most industries?
      • A) OSHA
      • B) EPA
      • C) EEOC
      • D) FTC

Answers: Practice Proactive Risk Management

    • 1. C) Wrongful termination claims are the most common type of employee lawsuit, often alleging discrimination, retaliation or contract violations.
    • 2. A) Researching potential vendors’ litigation histories can reveal red flags like contract breaches or subpar performance disputes.
    • 3. B) Employee handbooks should be reviewed and updated annually to ensure policies comply with ever-changing labor laws.
    • 4. C) Regular safety training on equipment use, hazardous materials handling, etc. reduces accidents and injuries that can lead to costly lawsuits.
    • 5. A) The Occupational Safety and Health Administration (OSHA) sets and enforces workplace safety standards for most U.S. businesses.

Questions: Secure Intellectual Property (IP)

    • 1. What type of intellectual property protects a company’s brand name?
      • A) Copyright
      • B) Trademark
      • C) Patent
      • D) Trade secret
    • 2. How long does a utility patent typically last from the application filing date?
      • A) 5 years
      • B) 10 years
      • C) 20 years
      • D) 50 years
    • 3. Which of the following does a non-disclosure agreement (NDA) protect?
      • A) Financial records
      • B) Customer lists
      • C) Proprietary formulas
      • D) All of the above
    • 4. What’s the best way to protect a restaurant’s secret recipes?
      • A) Copyright them
      • B) Patent them
      • C) Require NDAs from all employees
      • D) Post them on the restaurant’s website
    • 5. If you find a copycat using your business’s name, what’s the first thing you should do?
      • A) Send a cease and desist letter
      • B) File a lawsuit immediately
      • C) Complain to the Better Business Bureau
      • D) Ignore it and hope they go away

Answers: Secure Intellectual Property (IP)

    • 1. B) Trademarks protect brands, logos and slogans that identify a business’s goods or services. The other IP types cover different assets.
    • 2. C) Utility patents (the most common type) expire 20 years after the application date, giving inventors a set time to exclusively profit.
    • 3. D) Confidential business info like financials, client lists and trade secrets can all be protected by well-drafted NDAs.
    • 4. C) Trade secret laws and NDAs provide the best protection for recipes, formulas and processes that aren’t readily observable.
    • 5. A) Sending a cease and desist letter demanding the copycat stop is a cost-effective first step before escalating to a lawsuit if needed.

Questions: Implement Strict Contract Protocols

    • 1. What clause in a service contract should spell out exactly what tasks will be done for what price?
      • A) Scope of work
      • B) Indemnification
      • C) Force majeure
      • D) Severability
    • 2. Which contract provision outlines the consequences for missed deadlines or subpar work?
      • A) Confidentiality clause
      • B) Termination clause
      • C) Remedies clause
      • D) Choice of law clause
    • 3. Non-compete agreements commonly restrict former employees from doing what?
      • A) Working for a competitor
      • B) Soliciting the company’s clients
      • C) Sharing confidential information
      • D) All of the above
    • 4. What’s a common drawback of arbitration clauses in contracts?
      • A) Decisions are often appealable
      • B) Cases can still end up in court
      • C) Costs can be substantial
      • D) Statutes of limitations are extended
    • 5. What’s the most reliable way to ensure an important contract protects your business?
      • A) Read it thoroughly yourself
      • B) Have an attorney review it
      • C) Hope for the best and sign it
      • D) Use an online template

Answers: Implement Strict Contract Protocols

    • 1. A) The “scope of work” clause is where you nail down exactly what services will be provided for what fees or rates.
    • 2. C) Remedies clauses spell out the solutions for breaches, like re-performance of shoddy work or refunds for delays.
    • 3. D) Non-competes can restrict working for competitors, poaching clients, and revealing trade secrets. Limitations apply.
    • 4. C) Hefty arbitrators’ fees, facility rentals, expert witnesses, etc. can make arbitration as expensive as court.
    • 5. B) Having a contracts attorney review key agreements is the best safeguard against unfair or risky provisions.

Questions: Document Everything Diligently

  • 1. How long should a business keep employee records like payroll, benefits and evaluations?
    • A) 1 year
    • B) 3 years
    • C) 7 years
    • D) Forever
  • 2. Which of the following is NOT a reason to document employee discipline and terminations?
    • A) Justify firing decisions
    • B) Remind the employee who’s boss
    • C) Defend against discrimination claims
    • D) Show a pattern of misconduct
  • 3. What type of business documents are most important to have backed up offsite?
    • A) Financial records
    • B) Customer contracts
    • C) Employee files
    • D) All of the above
  • 4. Which of the following is an insecure way to store sensitive digital business files?
    • A) Cloud-based storage with encryption
    • B) Company-issued devices with strong passwords
    • C) Employee’s personal email accounts
    • D) External hard drives in a locked safe
  • 5. What’s the best way to document a verbal warning given to an employee?
    • A) Don’t – verbal warnings don’t need records
    • B) Send the employee a casual Facebook message
    • C) Write a memo and keep it in their personnel file
    • D) Make an offhand comment to a co-worker

Answers: Document Everything Diligently

  • 1. C) The standard recommended retention period for most employee records is 7 years after termination, for both legal and tax reasons.
  • 2. B) Disciplinary documentation should be objective, factual and job-related – not an ego trip or power play.
  • 3. D) All critical business files – from financials to IP – should be securely backed up offsite in case of fire, flood, theft or sabotage.
  • 4. C) Employees’ personal email is highly vulnerable to hacking. Company data should only be stored on secure, encrypted business systems.
  • 5. C) Even verbal warnings should be documented right away with a simple memo in the employee’s personnel file in case of legal disputes.

Questions: Vet Potential New Hires Responsibly

    • 1. What’s the most reliable way to verify a job candidate’s past employment dates and titles?
      • A) Contact their former supervisors
      • B) Check their social media profiles
      • C) Ask the candidate to send proof
      • D) Assume their resume is accurate
    • 2. Which of the following is an illegal question to ask job applicants during an interview?
      • A) Do you have reliable transportation to work?
      • B) Are you comfortable working weekends if needed?
      • C) What year did you graduate high school?
      • D) Can you perform the essential job functions with or without accommodations?
    • 3. Which type of pre-employment screening is most likely to reveal a candidate’s true character?
      • A) Drug test
      • B) Reference checks
      • C) Personality assessment
      • D) Social media review
    • 4. What’s a common reason employers conduct credit checks on job applicants?
      • A) To see if they can afford the salary offered
      • B) To assess their ability to manage money
      • C) To determine their socioeconomic status
      • D) To check for red flags like fraud or theft
    • 5. How can an employer protect against negligent hiring lawsuits?
      • A) Conduct thorough background checks
      • B) Verify required licenses and certifications
      • C) Document all hiring decisions
      • D) All of the above

Answers: Vet Potential New Hires Responsibly

    • 1. A) While candidates may stretch dates or embellish titles, former supervisors can confirm the real details – if you can track them down.
    • 2. C) Interview questions that reveal protected characteristics like age are off-limits. The others relate to legitimate job qualifications.
    • 3. B) Speaking with people who’ve actually worked with the candidate, you’re most likely to get candid insights on their real personality.
    • 4. D) For jobs involving money-handling or sensitive data, background credit checks can reveal past mishandling incidents.
    • 5. D) Thorough credential vetting, proper licensure and consistent hiring documentation all help prove employees were carefully selected.

Questions: Discipline and Terminate Employees Cautiously

    • 1. What’s the most important thing to do before firing an employee?
      • A) Document clear reasons for termination
      • B) Throw a goodbye party
      • C) Change the locks
      • D) Notify their co-workers
    • 2. How often should employee performance reviews be conducted?
      • A) Monthly
      • B) Quarterly
      • C) Annually
      • D) Never – they’re a waste of time
    • 3. Which of the following is NOT a protected characteristic for employment purposes?
      • A) Race
      • B) Age (over 40)
      • C) Political affiliation
      • D) Disability
    • 4. What should a manager do first if an employee violates a company policy?
      • A) Fire them on the spot
      • B) Give them a written warning
      • C) Dock their pay
      • D) Verbally counsel them
    • 5. True or false: An employer can fire someone immediately for posting negative comments about the company on social media.
      • A) True – the company’s reputation must be protected
      • B) False – employees have freedom of speech rights
      • C) It depends on the nature of the posts and other context
      • D) It depends on the employee’s political party affiliation

Answers: Discipline and Terminate Employees Cautiously

    • 1. A) Documenting clear, justifiable reasons for firing – policy violations, poor performance, etc. – is critical to avoiding wrongful termination suits.
    • 2. C) Most companies conduct formal performance reviews annually, with periodic check-ins throughout the year. Quarterly or monthly is usually overkill.
    • 3. C) Political affiliation is not a federally protected class for private employers, but discrimination based on race, age, disability, etc. is illegal.
    • 4. D) Progressive discipline typically starts with an informal verbal warning, then escalates to written warnings, suspensions and termination if needed.
    • 5. C) It’s a gray area – posts disparaging the company may be protected speech unless they’re egregiously false, “trade libelous”, or threatening. Tread carefully.

Questions: Purchase Adequate Business Insurance

    • 1. Which type of insurance covers a company’s vehicles and drivers?
      • A) Workers’ compensation
      • B) Commercial auto
      • C) Professional liability
      • D) Umbrella
    • 2. What’s the best way to determine how much and what types of coverage your business needs?
      • A) Consult with a reputable business insurance agent
      • B) Ask your friends who own businesses
      • C) Google it
      • D) Choose the cheapest policies
    • 3. Which of the following factors does NOT typically impact a company’s insurance premiums?
      • A) Claims history
      • B) Industry risk level
      • C) CEO’s favorite color
      • D) Geographic location
    • 4. What does “additional insured” mean on a business insurance policy?
      • A) A second beneficiary on life insurance
      • B) An extra company or person covered by the policy
      • C) A backup insurer in case the first goes bankrupt
      • D) Supplemental coverage for high-risk activities
    • 5. True or false: General liability insurance covers data breaches and cyber attacks.
      • A) True – it’s a general policy, so it covers everything
      • B) False – cyber liability is a separate type of coverage
      • C) It depends on the specific insurer and policy
      • D) It depends on the type of data compromised

Answers: Purchase Adequate Business Insurance

    • 1. B) Commercial auto policies cover company-owned or leased vehicles and employee drivers for work-related accidents and liability.
    • 2. A) An experienced business insurance agent can assess your risks, recommend appropriate coverage types and amounts, and find reputable carriers.
    • 3. C) Insurers base premiums on many factors like claims history, business type, size and location – but not the CEO’s color preference.
    • 4. B) Adding other companies or individuals as “additional insureds” extends the named insured’s coverage to them for joint projects or interests.
    • 5. B) Most general liability policies exclude cyber risks. Separate cyber insurance is needed for data breach costs, network damage, ransomware and more.

Questions: Respond Quickly to Legal Threats

    • 1. Who should be your first call when your business gets sued?
      • A) Your insurance agent
      • B) A business attorney
      • C) The Better Business Bureau
      • D) Your mom
    • 2. What’s the purpose of a “litigation hold” notice to employees?
      • A) To announce a new company lawsuit
      • B) To warn them they may be sued personally
      • C) To require them to preserve potential evidence
      • D) To remind them to renew their legal insurance
    • 3. Which of the following is NOT covered by attorney-client privilege?
      • A) Emails with your lawyer about a pending case
      • B) Attorney meeting notes on legal strategy
      • C) Texts with a vendor mentioned in the lawsuit
      • D) Voicemails from counsel requesting a call back
    • 4. What does it mean if a lawsuit against your company is “frivolous”?
      • A) It was filed too late
      • B) It has no valid legal basis
      • C) It seeks an unusually large amount of damages
      • D) It was accidentally sent to the wrong defendant
    • 5. Which of the following could be illegal retaliation against an employee who filed a discrimination claim?
      • A) Firing them shortly after
      • B) Denying them an expected raise or promotion
      • C) Reassigning them to less desirable duties
      • D) All of the above

Answers: Respond Quickly to Legal Threats

    • 1. B) Consulting an experienced business litigator should be your very first step when sued, to assess the case and start building your defense strategy.
    • 2. C) A litigation hold notice goes to all employees who may have records relevant to a new or imminent lawsuit, instructing them to preserve that potential evidence.
    • 3. C) Attorney-client privilege covers direct communications with your lawyer for legal advice, but not routine business talk with third parties.
    • 4. B) A “frivolous” lawsuit has no real factual or legal grounds. It may be filed just toharass or intimidate. Courts can sanction frivolous plaintiffs.
    • 5. D) Suddenly firing, demoting, cutting pay or otherwise penalizing a worker who complained of discrimination can constitute unlawful retaliation under the law.

Questions: Learn from Past Legal Battles

    • 1. What’s the most important reason to conduct a post-mortem review after settling a lawsuit?
      • A) To assign blame for the problem
      • B) To identify ways to prevent similar issues
      • C) To celebrate your victory
      • D) To update your resume with the experience
    • 2. Which of the following is a common contract change made after a breach of contract dispute?
      • A) Requiring arbitration instead of litigation
      • B) Shortening the contract term
      • C) Adding a unilateral termination clause
      • D) All of the above
    • 3. What’s a proactive step businesses can take to avoid employee retaliation claims after a lawsuit?
      • A) Fire any employees who complain
      • B) Train managers on what constitutes retaliation
      • C) Encourage witnesses to keep quiet
      • D) Discredit the accuser to undermine their credibility
    • 4. How might a company change its hiring practices after an EEOC discrimination investigation?
      • A) Conduct more background checks
      • B) Ask more personal questions in interviews
      • C) Adopt a more diverse candidate selection process
      • D) Require longer probationary periods for new hires
    • 5. True or false: Details from confidential legal settlements should be shared widely to prevent similar issues.
      • A) True – transparency is the best policy
      • B) False – confidentiality should be maintained
      • C) It depends on the severity of the case
      • D) It depends on the other party’s actions

Answers: Learn from Past Legal Battles

    • 1. B) The main goal of a legal post-mortem should be identifying corrective actions to prevent repeat issues, not finger-pointing or gloating.
    • 2. D) Contract terms that may be revised after a breach dispute include dispute resolution methods, term length, termination rights, and many others.
    • 3. B) Proper manager training on legally protected activities, adverse actions and company anti-retaliation policies helps avoid accidental violations.
    • 4. C) Embracing more diverse sourcing, objective assessments and decision-making criteria can help employers show they’ve addressed hiring biases.
    • 5. B) Even if settlement details could help others avoid issues, violating confidentiality terms may allow the other side to sue for breach of contract.


The information provided in this article is for general educational purposes only and not intended as legal advice. Laws vary by location. For guidance on handling actual legal threats, please consult a licensed business attorney in your jurisdiction. Only a qualified lawyer who has reviewed the unique facts, documents and circumstances of your situation can provide the specific legal advice needed to adequately protect your company’s rights and interests.

Related Resources

Start an LLC in California: Top 10 Benefits

Spouse on Payroll: Genius Tax Hack or S Corp Pitfall? Unlocking the Secrets