Nothing can derail a healthy balance sheet faster than the cost of defending an unexpected lawsuit.

Prudent companies carry liability insurance and budget a certain amount for legal expenses, but a type of litigation that often catches small businesses by surprise is the area of employee lawsuits — and they’re on the rise. As a growing number of employees and employers find themselves battling over their differences in the judicial system, litigation costs for businesses have increased drastically. These costs are both direct, in the form of the actual expense of litigating a case and potentially owing damages, and indirect, from the negative impact of the conflict on employee morale, job satisfaction and, ultimately, business performance. It has therefore become imperative that companies develop strategies for minimizing the costs of employee litigation.

A PROACTIVE APPROACH

Everybody would like to avoid lawsuits, but simply hoping that employees will be sufficiently satisfied with their work to forego legal action is a gamble, not a strategy. The best way to avoid employee litigation is to proactively evaluate and align your employment practices to remove the sources of workplace conflicts, establish processes for documenting your employee relationships, and resolve disputes before they lead to litigation.

Shifting to a proactive approach to employment disputes requires a three-phase strategy:

Identifying the primary reasons for litigation

Analyzing what drives your employees to resort to litigation will enable you to begin thinking strategically about how to prevent lawsuits. In this phase, you must determine whether there are systemic problems in your business that may be leading to high litigation levels, then devise methods for reducing employees’ tendency to resolve disputes through the courts.

Recognizing potential legal pitfalls

Employer-employee relationships are filled with blind spots that can lead to the filing of a lawsuit. Hiring, managing and firing practices all have legal considerations, some of which can be overlooked. By understanding all the requirements and incorporating them into your employee management practices — not merely paying them lip service — you may be able to avoid the pitfalls in each stage of employment and drastically reduce the incidence of employee lawsuits.

Implementing prevention tactics

Having recognized the primary drivers of employee use of the court system and the common legal blind spots in employee management, you must implement proven prevention tactics. These tactics may include establishing internal conflict management systems, instituting additional training, and continually auditing your practices to measure their thoroughness and effectiveness. The goal of strategic employee management is to reduce costs and improve business performance. With that in mind, a strategy for reducing employee litigation offers an excellent cost-benefit proposition for achieving both objectives.