You’ve been sued!

Successful creatives who run their own firms in the Design/Build industry, always have their finger on the pulse of their business.   They watch their cash flow, sales, and always check their P&L (profit and loss) statements. 

While the possibility of being sued is minimal if you run an authentic and transparent business, the reality is that a small business owner will face the threat of a lawsuit at least once over the life of their business.   The financial implications can be devastating.  As our society grows more litigious with each passing year, presently 43% of small businesses were threatened with, or engaged in litigation.

While a larger firm is better-equipped to handle the financial hit of a lawsuit, a small firm will take a much larger hit of litigation, it can be far more damaging to a small business.  It’s important that small business owners understand what kind of coverage you need to protect yourself and retain business liability insurance.

I have unfortunately spoken to designers, architects and general contractors who have been sued and had to pay legal damages, which nearly put them out of business.

The repercussions of a lawsuit can go far beyond severe financial losses. A lawsuit can harm your reputation, especially if it paints your business in a negative light and if the case is publicized by local or national media. It also can put stress on you, your employees, and trickle down to your family as well.

You might be sued for one of many reasons, from breach of contract and product defects to employee relations, sexual harassment and noncompliance with federal regulations (such as the ADA (Americans with Disabilities Act), but most suits are brought by clients and employees. 

Many small design and architectural firms tend to treat their employees like family.  Studies show that one in five small businesses will tackle employee litigation, which can cost upwards of $125,000 to defend. While most firms will opt to settle out of court, of the cases that go to trial, 25% result in a judgment on behalf of the plaintiff.  The dispute can range from wage and salary violations to wrongful termination and now include discrimination with regard to the Immigration and Nationality Act.

Now let’s look at the second most common group – your clients.   A client may sue for a wide range of reasons—from feeling they did not receive the product or service they were promised, to getting injured on the company’s premises. Even businesses with seemingly transparent and client-friendly policies get sued. Here are a few reasons people might bring charges against a small business.

How can you reduce the potential of someone filing suit against you? 

One of the most important ways you can reduce your personal liability is to shield your firm with general liability which protects you from someone being hurt on your property to accusing you of false advertising.  There are also specialized policies that can be designed and curated for your specific business.  Errors and omissions (E/O) policies are especially important for the design/build community and cover you from a mistake with furnishings ordered to something that may have been omitted from specifications or drawings. 

You also should consider incorporating your business in a way that shields your personal finances from any legal claim.  You might form an (limited liability corporation) which can work for a single member or multiple members.  

Be sure to have an Operations Manual that is given (in physical or electronic form) to each employee, that clearly defines your policies and procedures.  It should also explain the office rules and how specific difficult situations will be handled.

I also suggest that you keep an attorney on retainer.   Before I enter into a contract with a vendor that I do not yet know, like and trust, I consult my attorney.  You want to know that someone understands your business and can be there to represent you should the need arise.  If you are sued, contact your attorney immediately—ideally before a suit has been filed or any formal action has been taken.

In my practice, our Letter of Agreement clearly states that all disputes will be resolved via Arbitration – the “kinder/gentler” mode of litigation.  You may wish to employ this clause as well.

I would also contact your insurance company. They will guide you through the process of filing a claim.

While a lawsuit is overwhelming and daunting, try your best to stay calm.  If you are in the right, it’s in your best interest to stay positive and expect a good outcome.   This will allow you to continue to run your business as best you can with a good attitude.  Negative energy breeds more of the same!

By taking the appropriate steps to protect your firm from both the business and financial risks of litigation, not only will you have better peace of mind, but also you just may save your business in the long run.