A customer or employee is threatening to sue. How seriously should I take it?

5.1Threats and claims are different things

"I'm going to sue you" is a statement of intent. A claim is a set of facts that, if true, the law gives a remedy for. The first question is always what the claim would be. A customer unhappy with a service has a possible contract or consumer-protection claim. An employee who says they were not paid overtime has a possible wage claim. An employee who says they were fired after complaining has a possible retaliation claim. Name the claim, and the seriousness becomes clearer.

5.2What a customer can bring

• Contract and refund disputes. What was promised, what was delivered, what the terms say. Usually small claims, with the limit set by state law.
• Consumer protection. Every state has a statute against unfair or deceptive practices, modelled loosely on Section 5 of the FTC Act,¹ many with fee-shifting and some with multiplied damages. Advertising claims, hidden fees, auto-renewals and refund policies are the common triggers.
• Chargebacks. Not a lawsuit, but a card dispute that the processor decides on documents. Respond with the contract, delivery proof and communications.
• Reviews and complaints to agencies. A state attorney general or the FTC may receive the complaint; chapter 3 covers what follows.

5.3What an employee can bring

• Wages and overtime. Under the Fair Labor Standards Act and state wage laws: unpaid overtime, minimum wage, misclassification as exempt or as a contractor.² These can go straight to court or to the Department of Labor. Chapter 10 covers them.
• Discrimination and harassment. Under federal law the employee must usually first file a charge with the Equal Employment Opportunity Commission or the equivalent state agency, within a period measured in months from the act complained of, and receive a right-to-sue notice before filing in court.³ State law may differ.
• Retaliation. Adverse action because the employee complained, filed a charge, or reported a violation. Often the strongest claim in the set, because the timing proves itself.
• Wrongful termination and contract. Depends on the state and on any written agreement or handbook promise.

5.4The conduct that turns a threat into a case

1. Firing, demoting, cutting hours or otherwise punishing the person who complained. Retaliation claims are won on timing.
2. Deleting messages, editing time records, or "cleaning up" the file. Once litigation is reasonably anticipated, records must be preserved.
3. Replying in anger, in writing. Everything you write is an exhibit.
4. Discussing the complaint with other staff or customers in a way that could be defamatory or retaliatory.
5. Ignoring it. A complaint that is acknowledged, investigated and answered is a complaint with a record showing the business acted reasonably.

5.5What to do this week

1. Acknowledge the complaint in writing, briefly and without argument: received, being looked at, will respond by a date.
2. Preserve records: the file, the messages, time and pay records, the contract, the reviews.
3. For an employee: take no adverse action. If one was already planned for unrelated reasons, get advice before proceeding.
4. Pull the facts. What was promised, paid, delivered, said.
5. Notify your insurer. Employment practices liability policies, where held, usually require notice of a threat as well as a claim.
6. Decide whether to resolve. A refund with a short release, or a wage correction, is often the cheapest outcome. For an employment matter beyond a simple pay correction, take advice before offering anything.

5.6When you need a lawyer

Any employment complaint involving discrimination, harassment or retaliation. Any wage complaint that may extend beyond one employee, because the same practice usually affected others. Any customer complaint that cites a consumer-protection statute or has gone to an agency. A simple refund dispute within small-claims limits can usually be handled without one.