How to Limit Business Liability Risks

As of May 28, 2021, the Paycheck Protection Program has run out of funding. You can learn more about the PPP with our COVID-19 resource hub.

As small businesses re-open to the public after being shut down due to the COVID-19 pandemic, many business owners have begun to voice concern over the possibility of facing coronavirus-related liability risks. Will re-opening lead to a wave of lawsuits against businesses where customers or employees believe they contracted the disease?

Some government officials say yes. Certain states, such as North Carolina, Oklahoma, Utah, and Wyoming, have passed legislation that offers businesses liability protection specific to COVID-19. Proponents say this will open a path for more protection for small business owners, and allow them to operate without fear of being sued. Opponents assert that such legislation is too broad, and that passing these laws would weaken the incentives businesses have to protect workers. Legislation on the federal level is currently being discussed.

The uncertainty that comes with opening up has left business owners concerned about the possibility of potential business risks. Dealing with frivolous lawsuits from customers and employees can eat up a business’s time and money.

Here are concrete steps you can take to limit the chances of your business running into a lawsuit tied to the coronavirus.

The best thing business owners can do to limit liability risk? Protect employees and customers

Protect your business from lawsuits by preventing them from happening in the first place. No amount of legal protection will leave you fully untouchable if you don’t have appropriate measures to prevent contamination in your business. Implementing protective measures does two things to lower the chances of liability risks: it prevents COVID-19 from spreading in your small business, and shows customers and employees that you care for their health and are actively taking responsibility to keep them safe.

High-profile COVID-19-related lawsuits have so far included essential workers such as nurses that asserted they were made to work despite lacking proper equipment. Though most Americans say they wouldn’t sue a business if they were exposed to the virus on its premises — 66% wouldn’t sue their employer, and 70% wouldn’t sue a business at which they were a customer, according to the Harris Poll — good risk management should encourage lowering the potential for exposure as much as possible. Make sure you’ve implemented the necessary precautions to minimize the risk of coronavirus spreading among your employees and customers.

Basic prevention measures should include:

• Encouraging frequent handwashing with soap and water. If that’s not an option, hand sanitizer with at least 60% alcohol should be made readily available. Encourage employees to wear facemasks.
• Practice social distancing in your business. Mark spaces where people should stand in lines or sit.
• Implement frequent cleaning procedures, including wiping down counters, handles, and other areas that are touched frequently.
• Consider protecting your employees by tweaking your business practices. Can you shift hours so that they can avoid busy commute times? Can any of your employees work from home?
• Move vulnerable workers — the immunocompromised or elderly — to roles that minimize interactions with customers.
• Provide adequate training to employees. Make sure clear rules are communicated to your staff and that they’re being followed. Post signage around your business to remind employees and customers of good practices.
• Keep an eye on local and national news. As frustrating as it is, guidelines can evolve as understanding of the virus deepens and cases fluctuate in your area. Follow your local health officials’ website and health entities such as the Centers for Disease Control and Prevention (CDC) for a more detailed list of best practices.

What if you’re having trouble paying for basic protective equipment?

Personal protective equipment, referred to commonly as PPE, was not originally listed as an eligible expense in the first iteration of the Paycheck Protection Program (PPP). The Paycheck Protection Program Flexibility Act (PPPFA) however, signed in early June, allows for PPE to be covered by PPP funds. Keep a clear record of any PPE you purchase if you want it to be forgivable under PPP loans.

Should I make my customers sign a liability waiver?

Liability waivers are not new. Businesses like indoor rock climbing gyms or ski schools — any business whose customers engage in a high risk activity — have long used liability waivers to ward off legal repercussions should a customer come into harm on the business’ premises. Today, when COVID-19 has increased the health risks of dining at restaurants or going to a massage parlor, some businesses have begun to consider having customers sign a liability waiver.

Proponents say that liability waivers can keep frivolous lawsuits — that is, lawsuits with no real legal merit — at bay. Be sure to note that waivers won’t protect business owners from gross negligence, recklessness, or intent to harm. This means that a liability waiver won’t let your business completely off the hook if the court decides that your business was negligent in preventing the spread of coronavirus in the first place. Make sure that you uphold proper sanitary measures and provide training for your employees.

Should I get liability insurance for my small business?

Liability insurance in normal times would help you pay for costs should your business be sued by a non-employee. General liability insurance for your business can typically cover physical injury, defense costs, property damage, and product liability.

If you’ve maximized precautionary measures against the virus and are looking for another way to give yourself peace of mind against COVID-19 lawsuits, general liability insurance may be an option. Make sure that your insurance policy covers risks associated with coronavirus. Several insurance companies specifically do not offer insurance coverage of coronavirus-related incidents.

Remember that most industries require you to have workers’ compensation insurance. Though the exemptions and requirements vary from state to state, workers’ compensation can both pay for your employee’s medical fees if they face illness or bodily injury on the job, and shield business owners from having to fully foot the costs — a win for both employers and employees. A least 14 states so far have expanded workers’ compensation to consider COVID-19 a work-related illness, while other states are considering the same. What this mean can vary from state to state. In Wyoming, for example, workers’ compensation covers all workers. In states like California and Kentucky, workers’ compensation has been expanded to cover essential workers, including grocery store workers.

Finding out whether your employees will be eligible for workers’ compensation if they were to catch the virus can put your mind at ease.

How can switching my small business structure decrease liability risk?

If you’re still nervous about being sued, you can protect your personal assets by filing a certificate to form a limited liability company, more often called an LLC. Businesses can have several structures, including sole proprietorship and LLCs, the two of which have different legal implications. Under sole proprietorship, an owner and the business are one legal entity. If a business is an LLC on the other hand, it exists as a legal entity separate from the owner; business assets are separate from your own. This means that if your LLC restaurant is sued, or you can’t pay your debts, your personal assets will remain protected. Converting your sole proprietorship business to an LLC will require some paperwork, and a fee that can range from tens to several hundreds of dollars, depending on your state.

There are some downsides to forming an LLC — there’s an annual fee, more tax forms, and it’s harder to raise money from outside investors compared to other business structures. But becoming an LLC can add another layer of protection against a potential lawsuit and your personal assets.

Reducing liability risks means protecting your business from both coronavirus and liability lawsuits

Keeping your business safe from potential liability is heavily tied to the safety of your customers and employees. Acquiring PPE to protect against the virus proves to be a good risk management move. With PPP now covering expenses you might incur from buying PPE, keeping people in your small business safe is financially smart and viable.

The other steps you can take to ward off frivolous lawsuits — liability waivers, liability insurance, and restructuring your small business — can cast additional safety nets in the case that misfortune does strike your business.