Five Tips to Avoid Litigation

Avoiding litigation is one of the most important things you can do for your business.  This article addresses some of the common ways you can stay out of court and spend your money on advertising and inventory rather than court costs and attorney’s fees (which can be substantial).

1. Contracts – your business will regularly enter into contracts or agreements, both oral and written. By the way, oral contracts are in most cases enforceable so do not think that just because a particular agreement is not in writing that you are not bound by your words.  It is certainly better to have the agreement in writing so that you know the terms, you know what to expect from the other party and you know what they expect from you.  In many cases though, contracts are poorly written and do not consider all aspects of the transaction.  Remember that you do not want to have to appear before a judge to explain what the contract really means.  Use well written contracts to reduce your risk and to give you the ability to predict the future and to keep you out of court.  Finally, make sure you read and understand the contract terms.  Before you sign the contract make sure your questions are fully answered and you are satisfied that it is in your benefit to sign it.  Lawbooks are full of contract cases where the business owner says – I didn’t know what I was signing!   Too late.
2. Manage client (customer) expectations – Some clients are trouble waiting to happen. Once you have been in business for a while you will be able to spot them.  For example – a prospective client may show up in my conference room with what they think is a million dollar case.  After review I may determine that the case is worth $20,000 at most.  To prevent problems in the future I will tell them what I think of the case and let them decide whether to hire me or not.  Clients and customers need to know what to expect and how much they are going to pay for it.  More importantly they need to know the risks involved in every possible course of action. Despite all your best efforts though, there are people who will just not be happy with anything you do for them.
3. Employees – In most cases employer-employee relationships are not memorialized in a contract. Employees are hired “at will” and can quit or be terminated with or without cause.  This is no guarantee though that a terminated employee will not resort to legal action for what he or she thinks was a wrongful termination.  If you have employees I recommend obtaining or writing an employee handbook and review it with your new hires.  Make sure they understand the provisions of the handbook and what is expected of them.  Keep good records of employee performance which should include periodic evaluations.  If an employee is not performing up to your standards, whether written in a handbook or verbally transmitted at the time of hiring, make sure you document that fact and provide immediate feedback to him or her.  Also – make sure you comply with overtime rules and all other federal employment laws.
4. Taxes – Unfortunately you will have to share the bounty of your business success with federal, state and local tax authorities. But what does this have to do with litigation?  Simple – the state attorney general and the United States Department of Justice can initiate litigation against you for failure to pay your taxes or file the necessary tax returns when due.  The amount of paperwork a business needs to file to comply with all federal, state and municipal tax returns is daunting.  Get immediate help if you feel that this requirement is slipping away from you.  Penalties are very unpleasant and are a true waste of your hard earned money.  Stay on top of this and stay out of court (and out of IRS offices).
5. Spot and solve problems early – The old saying the customer is always right is not correct. In many cases the customer is wrong.  If a problem with a customer arises, solve it as soon as you can.  Being in the right is no guarantee that you will prevail under all circumstances.  I had a client who felt I did not get him the result he was looking for, i.e. I did not effectively manage his expectations.  He threatened to sue if I did not give him five thousand dollars.  I had a choice to make – fight a lawsuit for two years, pay another attorney to represent me at $400 per hour or pay him the five thousand.  I paid the five thousand even though I did nothing wrong.  In another case I obtained a good result for a client and she sued me anyway.  After four years of litigation it went to a four-day trial.  I won at trial but my attorney’s fees were staggering.   No one really won.  Avoid this.

Every day you show up for work, open the door and hope for a profitable month or quarter.  All business owners do.  Every day we take risks that no one will show up, or that the ones who do will be satisfied with our efforts on their behalf.  Getting involved in litigation is unpleasant, psychologically draining and very expensive.  I propose above five ways of avoiding this unnecessary drain on your business.  Each of the above five strategies are simply a good start to avoiding litigation.  Take each one and expand and modify it to fit your business.  I write this from a lawyer’s standpoint.  You may have a retail shop or a medical practice.  Hopefully you will derive some benefit from adapting the above to meet your specific requirements.  I wish you the best of luck in your enterprise and hope to not see you in court.