Running a business is risky. The good news is that many owners are prepared for it. The bad news is that what they mostly prepare for are challenges like rising tariffs and costs, employee turnover, or losing customers. Many never consider that a simple workplace mistake can turn into an expensive employment lawsuit.
But the reality is that workplace mistakes and employment litigation are becoming more common these days. And the figures around these cases are sobering. The average cost to defend an employment lawsuit can easily run into the tens of thousands, and settlements can be six figures or more.
Just recently, in May 2026, a former JPMorgan employee won $4M in a wrongful termination lawsuit after being fired over a $642 ‘Super Bowl’ deli platter. What could have been handled internally as a simple mix-up in 2024 became a seven-figure settlement in 2026.
That’s just one example. Most of these lawsuits don’t stem from bad intentions. They happen because busy managers make simple, avoidable mistakes.
This guide discusses some of the most common mistakes that lead to costly lawsuits. Read on to learn how you can protect against them.
Misclassifying Employees
Employee misclassification is when an employer documents a core worker as an independent contractor to avoid certain financial commitments. This mistake is almost everywhere, but it’s rarely done maliciously. A business just wants flexibility, so it calls someone a contractor instead of an employee.
The problem? If you control how, when, and where someone does their job, the law probably sees them as an employee, no matter what the contract says. This can lead to expensive fines as well as claims for back wages and taxes, even if it doesn’t get to the courts.
An example happened in 2025 when the Department of Labor recovered $446,334 in back wages for 88 misclassified home care workers in Louisiana. In a similar case, a Massachusetts and Pennsylvania healthcare staffing operation was ordered to pay over $2.4 million to 341 employees who had been wrongly misclassified. Clearly, this mistake is a fast track to an FLSA claim.
So, how do you avoid this mistake? Review contractor relationships annually. Run every “contractor” relationship through the DOL’s economic realities test to check if your workers are truly independent. When in doubt, reclassify them as W-2 employees.
Mishandling Harassment Complaints
Mishandling a harassment complaint is when you fail to promptly and thoroughly investigate an employee’s report of inappropriate workplace behavior. It could be anything from sexual harassment to bullying or even physical confrontations. If nothing is done about complaints like these, you may end up looking at a bigger, much pricier lawsuit.
Employment lawyers will tell you that one of your best defenses in a harassment case is showing you took “prompt and effective corrective action.” Do nothing, and you’re making a big mistake.
Look at what happened with SkyWest Airlines. In late 2024, a federal jury hit them with a $2.17 million verdict. The case was about gender discrimination and a hostile work environment. The problem wasn’t just that the harassment happened. It was that people who should do something about it did nothing. That inaction cost them millions, though it was later reduced to $300,000.
The good news is that preventing this expensive mistake is surprisingly not complicated. Document every complaint, investigate promptly with someone neutral, and follow through on consequences.
Retaliating Against Complainants
Workplace retaliation happens when employers take a negative action, such as firing, demoting, or punishing a worker because they exercised their legal rights.
You can’t do that. Unfortunately, it is, hands down, the single most common thing employers do, according to the Equal Employment Opportunity Commission (EEOC). In fact, retaliation against employees makes up the top spot of charges to the EEOC for seventeen straight years, with roughly 42,300 charges in 2024 alone.
Here’s what many employers don’t know when they retaliate against whistleblowers and complainants. You can win the underlying discrimination claim, but lose on retaliation, because both are judged separately. Demote someone, cut their hours, or start treating them funny right after they complain, and you’ve handed their lawyer a case that could cost your company big.
Preventing retaliation at work starts with a simple rule: nothing changes for an employee after a complaint, unless it’s fully documented and unrelated. Let employees know that it’s safe to speak up.
Failing to Accommodate Disabilities
Failure to accommodate means refusing to make reasonable operational adjustments for qualified workers with medical conditions. But the Americans with Disabilities Act (ADA) says employers must provide reasonable accommodations for employees living with disabilities unless it causes “undue hardship” to the company. It’s the law.
Failing to accommodate, or at least engage in the “interactive process,” which is a dialogue with the employee to find a solution, is a costly mistake. And it isn’t just current employees. Even discriminating during recruitment as a result of disability, religious belief, sexual orientation, or race can lead to ADA lawsuits with hefty payouts.
In 2023, for example, a federal jury awarded a whopping $36 million in a lawsuit against Werner Enterprises for discriminating against a deaf truck driver applicant. The settlement was also later reduced to $335,682 in 2024.
As employment attorneys at Conn Maciel Carey LLP note, an employer who demotes an employee after medical leave or denies a promotion because they asked for religious accommodation is opening the door to a retaliation claim.
So, what do you do here? Never give an immediate “no” to an accommodation request. Document every conversation as you explore practical adjustments with the worker.
Privacy Violations
Privacy violations happen because businesses mismanage employee personal data or violate their privacy.
Unfortunately, this happens a lot more than many employers like to admit. But even in this age where everything is online, and people almost live their lives on social media, employees still have a right to privacy.
Examples of privacy violations include monitoring employee emails without a policy or doing background checks without proper written consent under the Fair Credit Reporting Act (FCRA). It also includes mishandling medical information gathered during an accommodation request. Each one opens the door to separate claims under state privacy laws, the ADA, or FCRA.
The solution is not to cancel doing due diligence. It’s to have a clear, written policy on employee monitoring. If you’re going to monitor computer use, be upfront about it. Ensure background checks are done correctly and with proper authorization. Protect employee data like you would your own.
Poor Employee Termination
Poor termination means firing an employee without maintaining a clear, factual written trail of their performance or conduct issues.
While you can have every legitimate reason in the world to fire someone, without a paper trail, a jury only has one side of the story: theirs. Weak documentation is one of the biggest drivers of wrongful termination exposure, and it’s entirely preventable.
No one expects you to force yourself and others to work with a person who’s bringing little or nothing to the table. But make sure that you document everything leading up to the termination. Performance reviews, write-ups, verbal warnings, and coaching sessions should all be in the employee’s file.
This creates a clear narrative that the termination was the result of a pattern of behavior, not a hidden bias.
FAQ
How much do employment lawsuits typically cost employers?
It varies wildly. Settlements can range from a few thousand to hundreds of thousands. If it goes to trial, the final judgment could be in the millions, and that’s minus the legal fees.
Can small businesses be sued for these violations?
Absolutely. While some federal laws only apply to larger businesses, state and local laws often have much lower thresholds. The truth is that there’s no “safe haven” for small employers to discriminate or break labor laws.
Do these risks apply to remote employees?
Yes. The laws apply to where the employee works, not where the office is. If you have remote employees in a different state, you need to comply with that state’s employment laws, which can be very different from your own. This includes things like wage payment, sick leave, and privacy laws.
6 Mistakes That Lead to Costly Employment Lawsuits: Table
The table below summarizes what we’ve been talking about so far.
| Mistake | Cost | Fix |
| Misclassifying contractors | Back wages, fines, FLSA claims | Run the DOL’s economic realities test yearly |
| Mishandling harassment complaints | Multi-million verdicts, reputational hit | Investigate fast, document, follow through |
| Retaliating against complainants | Lawsuits even on weak underlying claims | Build a culture where it’s safe to speak up |
| Failing to accommodate disabilities | Massive verdicts, retaliation exposure | Never say “no” outright. Document the interactive process |
| Privacy violations | Privacy, FCRA, and ADA lawsuits | Use clear monitoring policies, and obtain consent for background checks |
| Poor termination documentation | Wrongful termination exposure | Keep detailed records of any issues, warnings, and disciplinary actions |
Protecting Your Business From Expensive Legal Costs
There you have it: six mistakes that can lead to expensive employment lawsuits and heavy settlements. None of these mistakes happen because employers, HR personnel, or managers are bad. They tend to happen as a result of poor training, policies that exist only on paper, or reactive operating procedures.
As you can see, the results can be really expensive. Thankfully, all of these mistakes can be avoided, and we’ve touched on how to do so in this guide. While these proactive fixes might look like a hassle now, they will save you a lot of headaches down the road.
