Avoiding Lawsuits Through Better Business Management - BodyShop Business

Avoiding Lawsuits Through Better Business Management

While every company would prefer to not get sued, chances are it will happen. So, if you’re interested in learning about some common issues with fairly simple solutions that could save your company thousands (or millions) of dollars if you are sued, please read on.

While every company would prefer to not get sued, chances are it will happen. So, if you’re interested in learning about some common issues with fairly simple solutions that could save your company thousands (or millions) of dollars if you are sued, please read on.

Background Check Blunders

I’m willing to bet some of you run a background check on your applicants. Or perhaps you run a check (also known as a consumer report) before you promote an employee into a new position. It’s a common practice, but if you use background checks to make an employment decision, then you must comply with the Fair Credit Reporting Act (FCRA). The Act requires that you disclose to the applicant or employee that you are going to obtain information about them for employment purposes. The individual must authorize this search in advance; however, by statute, the authorization and disclosure that the individual signs should consist solely of the disclosure. And solely means solely. So if your FCRA authorization contains anything more than an acknowledgment of receipt of the disclosure and an authorization to obtain the consumer report, you need to revise it.

Record Retention

In order to run your business, you collect certain information and maintain certain employee records – records about things like hours worked, wages paid and leave requests. Almost all employee records need to be maintained for at least several years in case of governmental audit. Whether you maintain them in a file cabinet or in the Cloud, maintain them somewhere. And if you maintain records containing medical information about employees, keep those records in a particularly secure manner, separate from the rest of the employee’s personnel file

Additionally, do you maintain records on applicants that you do not hire? You should. Imagine that Bertha applies for a job. You don’t hire her, so she sues your company alleging that she wasn’t hired because she is over the age of 40. After looking at the pool of applicants you realize that, for whatever reason, she was actually the only applicant over the age of 40 who applied. That means it’s not surprising that you hired someone under the age of 40 – a helpful fact to know if you’re defending a lawsuit. However, if you tossed the records regarding your applicant pool immediately after hiring your new employee, then you may have cost yourself a valuable defense.

Handbook Hitches

Good policies and consistent practices are among the best defenses to nearly every suit an employee may bring against you. So, if you don’t know the last time your handbook was last updated, we need to talk. A good policy will not necessarily save the company, but an unlawful policy will certainly cause you problems.

A good employee handbook records the company’s rules and communicates them to employees in an easy, understandable way. If a handbook is well drafted, it provides helpful information on what’s expected from employees and what they can expect from their employer. It can also provide the foundation for any employment decisions you need to make and – if the situation arises – form the backbone for the defense of unemployment claims, administrative charges and complaints, and lawsuits brought against you by employees. In contrast, a bad handbook can be black-and-white evidence of an unlawful policy. Handbooks are often an area that is neglected because it isn’t a “fire” that must be extinguished immediately. However, because your handbook will be evidence in nearly every employment claim, it is worthwhile to review and revise the information it includes on a regular basis to ensure it is updated and lawful.

Meaningless Reviews

An employee review is typically intended to be a mechanism to highlight an employee’s strengths while encouraging effort to address weaknesses. However, if every single employee you have gets a five out of five on every annual review, you may want to rethink your process.

Pointing out someone’s flaws is not fun, so many supervisors prefer to give everyone good marks. For example, let’s say that Johnny is a poor performer; however, his manager Jenny hates confrontation, so she gives him an acceptable review this year. Johnny is terminated shortly afterward for his poor performance – which truly was bad – but those inaccurate reviews have provided Johnny with some evidence to argue that his termination was a pretext for race or age discrimination. Train your supervisors to treat reviews seriously, to use them as a tool to encourage employee growth. If you do need to terminate Johnny, those honest evaluations can help support your defense. (If your company really can’t bear to be “negative” in the performance review process, then at least make sure that performance and behavior issues are dealt with another way. For example, you can consider using separate disciplinary documentation for any issues that arise.)

State-Specific Snags

You need to know the quirks of the state(s) where you operate. It is simple. If your state provides leave for victims of domestic violence (like Illinois), then you need to know about that law before you fire someone who was in the emergency room or in court to get a restraining order against an abusive partner.

If your handbook prohibits firearms on the company premises, but state law permits lawfully possessed weapons to be stored in a locked car in the parking lot (like Louisiana), you need to know that. If your state requires that you pay accrued but unused vacation time to employees at termination (like California), then you need to follow that law or you may end up with a wage claim. If you don’t know about the oddities of the state(s) where you do business, chances are that you will violate the same law repeatedly. And repeated violations of the law can easily turn into expensive class-action lawsuits. And it doesn’t stop at the state level. Cities may have their own ordinances that mandate additional obligations, such as non-discrimination on the basis of sexual orientation or appearance, or ban-the-box requirements that prohibit asking applicants for criminal record information on job applications.


Finally, consistently train your employees on harassment and non-discrimination, workplace safety, timekeeping and other matters that can have an impact on the employment relationship.

Training is valuable in at least two ways. First, it teaches and reinforces your expectations. Second, the mere fact that you had current training can be a defense to certain harassment claims. Training for everyone at the supervisory level and above is not optional. It must be done – and on a regular basis. But I also strongly recommend that you have separate training sessions for non-supervisory employees. If you have employees in that gray area, such as team leaders or group leads, either include them in the management training or conduct separate sessions for them that have the same content as the management training.


A good employment lawyer familiar with your region will be invaluable in navigating all of these issues, as well as helping you spot more issues specific to your business and area. And while these changes may not seem major, they can be a valuable tool to save you big money if and when you’re defending a lawsuit.

Please note: This column is made available by the attorney and publisher for educational purposes only, to give you general information and a general understanding of the law, not to provide specific legal advice or to establish an attorney-client relationship. This column should not be used as a substitute for competent legal advice from a licensed professional attorney in your state.

This article was originally published by Shop Owner.

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