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The Five Most Common Lawsuits business owners face

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What are the most common types of lawsuits filed against businesses?

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 and state anti-discrimination laws. Federal laws bar employers from discriminating against workers based on gender, race, religion, age, disability and other characteristics. Many states have enacted similar laws.

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 refers to the firing, demotion, harassment or similar act committed by an employer to punish an employee who has filed a discrimination complaint or lawsuit. A worker who has been fired after filing a discrimination complaint may sue the employer for retaliation.

Wrongful termination means firing an employee in violation of the law. Many wrongful termination claims filed against employers are based on allegations of discrimination. For example, a 50-year-old worker who was terminated files a wrongful termination suit against her employer. Her suit claims that she was fired solely because of her age.

Many small businesses do not employ a human resources professional. If the business owner is not familiar with federal and state anti-discrimination laws, the company will be vulnerable to lawsuits. Claims alleging discrimination and other employment-related acts may be insured under an employment practices liability (EPL) policy.

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 disability. Her suit alleges that her wheelchair did not fit through the door. As a result, she did not receive the same level of services afforded to non-disabled customers. Some EPL policies cover discrimination claims filed by individuals who aren't employees.

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. Workers may also contend that the employer avoided paying overtime by misclassifying them as independent contractors.


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 (negligence) and intentional.

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.

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 Busy is constructing. Edwards never does any work on the project so Busy sues the subcontractor for breach of contract.

Most claims based on breach of contract are not covered by liability policies. In the previous example, Busy Builders could have protected itself against the subcontractor's failure to perform by requiring Edward's to purchase a surety bond.

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