5 Most Common Lawsuits

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Lawsuits against businesses are hardly rare, but some occur more frequently than others. The five types of suits outlined below are the most common. Note that most, but not all, of these suits may be covered by insurance.

1. Employment Discrimination and Wrongful Termination

Many lawsuits filed against businesses are based on allegations of discrimination, harassment, retaliation, or wrongful termination.

Most workers are protected from these acts by federal antidiscrimination laws. Some of the key acts are as follows:

  • Title VII of the Civil Rights Act. Bars employers from discriminating against workers based on sex, race, religion, color, or national origin.
  • Pregnancy Discrimination Act. Prevents employers from discriminating against a woman because of pregnancy or a related condition.
  • Equal Pay Act. Requires employers to pay men and women the same wages if they perform equal work in the same workplace.
  • Age Discrimination in Employment Act. Prohibits employers from discriminating against employees ages 40 or older based on their age.
  • Title I of Americans With Disabilities Act (ADA). Prohibits discrimination against qualified employees who have a disability.

Many states have enacted their own antidiscrimination laws that protect workers. Remember that state and federal laws apply to applicants for employment as well as employees.

Terminology

To protect themselves from employment-related suits, employers need to understand some basic concepts. Harassment and retaliation are types of discrimination. Federal law defines harassment as unwelcome conduct based on race, color, religion, sex (including pregnancy), national origin, age, disability, or genetic information.

In a harassment claim, the alleged perpetrator is often a manager or co-worker. The plaintiff claims that he or she reported the harassment to the employer, but the employer failed to stop it.

Retaliation means the firing, demotion, harassment, or similar act committed by an employer to punish an employee who has filed a discrimination complaint or lawsuit. For example, an employee files a discrimination complaint and then is fired by the employer. The worker sues the employer, alleging that the firing took place in retaliation for the discrimination complaint.

Wrongful termination means firing an employee in violation of the law. Many wrongful termination claims against employers are based on allegations of discrimination. For example, a 50-year-old worker is terminated. She subsequently sues her employer for wrongful termination, alleging that she was fired solely because of her age.

Small Businesses Vulnerable

Small businesses may be more vulnerable to employment-related lawsuits than their owners may think. Many small companies do not employ a human resources professional. If the business owner does not take steps to ensure the company is complying with federal and state laws, lawsuits may result.

Claims alleging discrimination and other employment-related acts may be insured under an employment practices liability (EPL) policy.

2. Discrimination Suits Not Based on Employment

When businesses are sued for discrimination, the plaintiffs aren't always employees. Suits may be filed by customers, suppliers, patients, vendors, and other individuals who have a connection to the business.

For example, a customer sues a restaurant for discrimination based on her national origin. Her suit alleges that the wait staff made derogatory remarks about her native country and then refused to serve her. Some EPL policies cover discrimination claims filed by individuals who aren't employees.

3. Wage Law Violations

Many lawsuits filed against employers are based on allegations that the employer violated a federal, state, or local wage law.

These laws are collectively called wage and hour laws.

The Federal Labor Standards Act (FLSA) sets the federal minimum wage. It also governs child labor, recordkeeping, and overtime pay. The FLSA creates two categories of workers, exempt and nonexempt. Generally, nonexempt employees are eligible for overtime pay while exempt workers are not. Many states and municipalities have enacted their own laws regarding wages and overtime pay.

Wage and hour suits are often based on claims that the employer failed to pay either the minimum wage or overtime pay. Workers may also contend that the employer avoided paying overtime by misclassifying them as independent contractors. Suits based solely on allegations of wage and hour law violations are not likely to be covered by insurance. Such suits aren't covered by general liability policies, and are specifically excluded under many employment practices and directors and officers liability policies.

4. Torts

Many suits filed against businesses by third parties are based on torts. A tort is a violation of a person's civil rights. There are two types of torts that can lead to lawsuits against businesses: unintentional torts (negligence) and intentional torts.

Negligence committed by a business owner or employee can cause an accident that injures someone or damages someone's property. The injured party may sue the business or the employee for bodily injury or property damage. Intentional torts like false arrest and wrongful eviction can also generate suits against businesses. Claims against a business for bodily injury or property damage may be covered by a general liability policy. Claims based on certain types of intentional torts are also covered by liability policies under personal and advertising liability coverage.

5. Breach of Contract

Also common against businesses are suits alleging breach of contract. A business owner breaches a contract when he or she fails to comply with its terms. For example, Edwards Electric, an electrical contractor, signs a contract with Busy Builders, a general contractor. In the contract, Edwards Electric agrees to install lighting in a building that Busy Builders is constructing. Edwards never does any work on the project, so Busy sues the subcontractor for breach of contract.

Most claims based solely on breach of contract aren't covered by liability policies. In this example, Busy Builders could have protected itself against the subcontractor's failure to perform by requiring Edwards to purchase a surety bond.