What you don't know can hurt you -- especially in court. Employment-related lawsuits are on the rise, as are the amounts awarded in compensatory and punitive damages. "It's one of the biggest legal trends of last few decades," says Fred Steingold, a lawyer and the author of The Legal Guide for Starting and Running a Small Business. "Numerous laws and court decisions have been carving out [ new] employee rights, and employees have become better informed and more aggressive."

What do you really need to worry about? Here are a few key areas:

The Internet. "The law hasn't been clarified yet," says Steingold. "It's still too new." But some areas are already problematic. Web surfing is one. Employees with Internet access can pull off and disseminate offensive content. Employers can also be liable if a worker takes copyrighted material from the Web and reconfigures it for company use.

Then there's E-mail. In harassment or discrimination cases, E-mail can become an enormous problem during the discovery phase of litigation. "Having E-mail is creating documentary evidence," says Mary Dollarhide of Paul, Hastings, Janofsky & Walker in Stamford, Conn.

Your E-mail policy should outline proper use of company resources and advise your employees that you may be monitoring and archiving their cybermissives.

Wrongful discharge. According to Steingold, the riskiest action you can take is to fire someone without knowing the legal rules. "That's when the really large verdicts are possible," he says. Many postfiring lawsuits charge employers with breach of contract. Not a problem, my employees are at-will, you say? Well, you may be more vulnerable than you think. Employee handbooks and job-offer letters, improperly handled, can undermine the at-will relationship.

A performance-based termination should never be a surprise, so make performance appraisals as candid as possible. "Often a supervisor will shy away from hard criticism," says Miriam McKendall, a partner at Holland & Knight in Boston. "Then if an employee's performance is called into question, it's harder to discipline or terminate them."

Sexual harassment. Recent U.S. Supreme Court decisions have widened legal protection to include both genders. Also, the courts have become more focused on the perception of the person subjected to the behavior. Many states now require companies to have a corporate sexual-harassment policy. But you also need to have a clearly defined reporting procedure and an investigative process that you actually adhere to.

Disabilities. Authorities can't seem to agree on what exactly constitutes a disability. Courts have proved unpredictable. One way to help protect your company is by maintaining up-to-date job descriptions, so there's never any question regarding the essential functions of each job.