Minimizing small business liability risks

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How you can help your small business owners minimize their liability risks

  1. Liability risks are a fact of business life, regardless of the business’ size.
  2. View the list of potential small business liability risks, from slips & falls to badly worded contracts, employee risks and more.
  3. Learn 6 specific steps to take to minimize risks, and what your client needs to do if they’re sued.

Liability risks are a fact of life, whatever the size of the business. Controlling liability risks in our litigious society is getting harder and harder. For that reason, we’re offering valuable information and tips on minimizing small business liability risks to share with your clients.  Keeping those risks to a minimum is a never-ending endeavor that requires constant vigilance and effort.

First, you’ll want to emphasize this isn’t a “one and done” task. As companies expand, they add more risks to their business, so an annual review with their agent (you) is crucial.

Liability takes numerous forms, ranging from risks with customers and employees to market conditions and of course, regulations.  Here is at least a partial list of potential risks they may face, for you to talk through with your client:

Related: Show your clients how expanding their business owner policy may save their bacon


Potential small business liability risks

Customer complaints

Even with the best service possible, a customer relationship can sour in many ways, sometimes resulting in a lawsuit. Possibilities include information protection and privacy, misinformation (false advertising) or civil lawsuits for personal injury. They shouldn’t ignore customer complaints, whether in person or online. Yes, that means regularly checking Yelp and their social media profiles, and responding quickly and politely, taking the complainer offline to learn more about the issue.

Related: Workplace accidents and best practices for incident reporting


Slip & fall accidents

One of the most common liability risks, these slip, trip and fall accidents cause thousands of injuries annually.

Employee training is critical to reducing slip and fall loss exposure. All employees who are likely to interact with customers, visitors or vendors should be trained on what to do should someone suffer a fall. Medical care should be quickly provided to the injured person. People who feel they were treated callously or indifferently are more likely to sue.

Elimination of slip and fall hazards should be a periodic scheduled activity. It may be helpful to use a checklist for this, from exits and stairs to doormats, spills, lighting, walkways and more. For a more detailed list, view our earlier blogpost, How to prevent workplace slips, trips and falls.


Employment practices liability

As you know, federal law restricts employment decisions based on race and national origin, religion and creed, gender, age and disability. Restrictions on race, religion, gender and disability apply to businesses with 15 or more employees, says I.I.I. Restrictions on age apply to businesses with 20 or more employees.

Nowadays, it’s hard to find good help, thanks to the Great Resignation. And employees have become more sue-happy, so it’s even more essential that your client is familiar with and abides by federal EEO laws. Employees can pose a legal risk for such issues as discrimination, unlawful termination, workplace safety and so forth.

An employee who feels discriminated against might also sue, making such charges as extreme emotional distress or wrongful termination. It is not a defense in such cases to say you didn’t know your actions were unlawful.


Hiring & firing practices

Not only is your client responsible for treating employees equally and fairly, they’re also responsible for their employees’ behavior. Here’s a great explanation from I.I.I.:

Immature, careless and irresponsible people are much more likely to engage in risky behaviors—from reckless driving, to sexual harassment, to cutting corners on safety rules, to stealing from their employers. Similarly, people who have drug and alcohol addictions are liable to present a variety of workplace dangers. The first step in cutting down on your liability exposure is to be as careful and thorough as possible about whom you hire. Failure to use a reasonable screening process for new hires could even expose you to negligent hiring liability.

Clear job descriptions and workplace rules, disseminated to all employees and applied consistently and without favoritism, can be a tremendous help in lessening the risk of unacceptable behavior, just one step in mitigating small business liability risks.

Related: How employee recruiting can help reduce work comp claims [slideshow]


Product liability

Specifically for your light manufacturing clients, a crucial step to reducing potential product liability claims is keeping scrupulous records over the life of a product, from design to obsolescence. In the event of a product liability lawsuit, those records can show that your client behaved with reasonable concern for the welfare of others.

To reduce the possibility of harm, products should be carefully designed and fully tested to identify possible product hazards all along the way. Your client should also provide their customers with thorough and detailed information about the product and appropriate warnings. They need to identify products for purposes of prompt recall and have a recall plan.

To minimize small business liability risks, loss control experts also recommend that they investigate, follow-up and document all customer complaints, even minor ones. This demonstrates your concern about your customers and shows that you take your duty to be responsible for the safety of your product seriously. Complaints could provide an early warning of a possible safety problem or other risk.



Contracts keep everyone on the same page and can help reduce disputes. Unfortunately, small business owners are often in over their heads when drafting legal agreements.

Business contracts are complex agreements with many moving parts, says Forbes. They should be reviewed on a routine basis as a business expands or if your client notices that a business relationship is becoming less profitable. Their attorney should be consulted, especially concerning any weak points in contracts that need to be addressed and renegotiated if necessary.

Relationships with vendors and other companies are a frequent source of risk. Liability could stem from disputes over contracts or verbal agreements, failure to deliver on promises or even perceived slights. Knowing how to prevent these disputes — and resolving them as elegantly as possible when they do arise — is vital to effective risk management.


Real property

Whether your client rents out or sells property, or conducts their business in the property, real estate is fraught with liabilities. Because purchases and leases have multiple uncertainties, moving parts and regulations, they can be risky. Business owners, says Forbes, owe a duty of care to those who visit a property your client owns; if someone gets injured, it can be quite costly.

Related: Help your clients mitigate commercial property risks


Steps to minimize small business liability risks

1.Identify risks and implement procedures to minimize them. While it’s impossible to completely eliminate small business liability risks, by implementing procedures to minimize risk – ranging from clearing snow from walkways to the protection of confidential information, depending on the nature of their business – they can reduce their likelihood.

If they can demonstrate that they’ve taken reasonable steps to ensure safety, they’re in a stronger position should a lawsuit occur. It’s simply a matter of showing a jury or a judge that they made sure that people were adequately protected.

2.Ensure they’re knowledgeable as to whatever regulations they must follow. Whether it’s employee practices compliance or OSHA standards, they must be well-versed at incorporating these regulations into their business. Encourage them to check with local organizations, professional societies and state and government resources to ensure compliance. The U.S. Department of Labor covers a wide array of topics, including Equal Employment Opportunity lawsbenefitsworkplace safety and training.

3.Ensure coverage is adequate. Even if the business is a small, home-based one, they need coverage that their typical homeowners policy doesn’t cover.

Our BOP and Package options are fairly comprehensive, but your clients will be leaning on you to identify additional coverages they may need.

4.Suggest they consult with their attorney. An attorney can aid in the numerous decision-making processes integral to running a company, from developing and revising policies to navigating a dispute. An attorney can provide insight into the legal implications of multiple risks.  Together they can take a careful, thorough inventory of your client’s current legal standing, and identify areas of risk. Their inventory should take laws, practices, ethics, environmental matters and even your current marketplace climate into consideration.

5.Implement COVID-19 sanitation procedures. Provide masks and sanitizing stations at the entry or at cash registers and refill them frequently. If serving food to employees and visitors, ensure that perishables are adequately stored to prevent spoiling. Ensure a cleaning crew implements COVID cleaning procedures. In the worst case, such as during a pandemic, prepare to shut down temporarily, furlough your employees and establish work-from-home policies.

6.Post any applicable warning signs. Always cover your workplace’s interests by putting warning signs for potential risks, such as “Caution: wet floor” at entries during wet weather and near bathrooms. If necessary, have staff members provide verbal reminders to visitors.

Trembly Law Firm cites Disney World as an example for needing warning signs: “The theme park is built into the Central Florida swamps, meaning that wildlife may come through the artificial canals. After a tragedy that led to the death of a child, new warning signs emerged warning people not to swim in the lakes.”


If your client is sued

They will need to provide evidence that they took their business owner responsibility seriously and made reasonable efforts to prevent harm to others. With such evidence, they’re much less likely to be found liable. Evidence can be in a variety of forms, depending on the nature of the liability risk, says I.I.I. They provide a few examples:

  • Copies of communications with customers or employees about safety and risk
  • Records of efforts to verify when hired that an employee was not a risk to others
  • Testimony that warning signs or other warning signals were provided regarding a hazardous condition onsite
  • Evidence from other professionals in their field that the decisions made and actions taken were consistent with acceptable professional standards
  • Records that equipment was regularly serviced by knowledgeable technicians

Notice that in most of these examples, some form of written record is involved. I.I.I. says documenting efforts to behave lawfully can be vital to proving that your client is not liable.

The goal in flagging common business risks is not meant to alarm but to alert your clients, says a Houston Chronicle article,  much like road flaggers alert you to slow down through a construction zone. As small-business owner, they may want to delegate these risks to their management team or professional consultants such as an accountant or attorney.