Six Ways Your Business Can Avoid Litigation

You have worked hard to start your own business, but have you taken steps to protect it? Litigation can destroy your business if you don't have the proper protections in place. Not only can litigation be a huge headache, but it can also be a PR disaster for your business. Implementing a few proactive measures will go a long way to protect your business, and will place you in a stronger position in the event that your business is sued. Below, we'll address six steps you need to follow if you want to keep your business out of litigation.

Document, document, document!

If you wait to start protecting your business until you're sued, it's too late! Start off by putting business practices and processes in writing, including contracts with employees. Business often have employees of several different rights, such as freelancers and W2 employees. Correctly defining the scope and nature of employees' duties in a written contract will help everyone involved with the company.

Additionally, employees need to sign non-compete, non-disclosure, and confidentiality agreements. Contracts will prevent employees from taking information about the company and selling it to your competitors, using the company secrets to get a new job, or setting up a competing business. Contracts help to protect the valuable information that makes your business successful.

It's similarly important to ask that your business vendors and service providers do the same. Contracts should include information about intellectual property rights, pricing information, delivery terms, confidentiality issues, and any other critical information pertaining to your relationship. Payment terms are one of the biggest areas to focus on, as it will help to prevent serious financial loss if you run into a vendor payment issue. Additionally, correct definition of the delivery and payment terms will help to reduce the risk of being sued by vendors and service providers.

Finally, consider implementing customer contracts, which are set up to avoid problems with guarantees. Have you ever needed to recall a faulty product, or been injured as a result of a faulty product? Who is responsible for the financial damages because of the product? Contracts with customers that clearly spell out the risks and assign legal responsibility for problems that may arise. This helps to prevent issues with liability later on down the road. If you have a third-party vendor handling products, it is important to write a waiver of liability to ensure your company is protected in case of a product recall.

Don't fall victim to a simple "handshake" contract. Rather, take the time to formally document business protocols to ensure your company will be protected. Not every situation will merit a formal agreement, but you need to track your handshake with a paper trail. Keeping the right information together puts your business ahead if you do end up dealing with litigation.

Hire an Attorney to Review Your Documents

If you have not drafted the documents through an attorney, you may not have identified all of the issues that could arise with a deal, which could cause problems if litigation occurs. An attorney needs to review all written agreements to make sure you're protected from every angle.

When working with an attorney, be sure to understand the documents you sign on behalf of your business. Sometimes an agreement might look straightforward, but the fine print can leave your business exposed to risk. An experienced attorney knows common risks that businesses face, as well as how to mitigate those risks.

Set Up Correct HR Measures

When you hire new employees, they ideally sign an employee agreement and then are sent to complete onboarding training. However, many businesses - especially new businesses - do not make this a priority. There are specific human resource measures that need to be established to ensure employees have all necessary information and that they know what is expected of them.

 Drafting an employee handbook is a highly proactive risk-avoiding measure, as it establishes employee expectations, appropriate behavior, and company policies. Firing an employee without having a handbook in place can expose you to the risk of being sued for wrongful termination. Writing a proper employee handbook is the ideal way to protect your company and prevent major lawsuits. Similarly, conducting and documenting annual employee trainings can be helpful in reinforcing the policies in your handbook.

Know Your Business Partners

Do you know who you are going into business with? While your best friend or sister may be a blast on the weekends, starting a business together is not always a wise decision. A business partnership is not unlike a marriage, as you need to completely trust in this other person and know that they will pull their own weight. For example, if they exceed your business' budget, you could become burdened with debt if the business fails. Don't partner with someone because you feel obligated to do so. Rather, make sure you share core values with your partner, and that you both are aligned on business objectives and processes.

Be Proactive About Protecting Your Intellectual Property

It's crucial to be proactive when it comes to your intellectual property by registering copyrights, trademarks, and patents. Failing to protect your intellectual property early on can lead you into needing to protect yourself in court. In some cases, you may lose your rights entirely if protective measures are not in place.

Not protecting your intellectual property can also make it easier for your competitors to steal your ideas and profit off of them. No one should be using your protected intellectual property unless they have signed a license agreement. License agreements are another crucial component of business growth and avoiding litigation.

Maintain Correct Insurance

Business insurance generally protects you from being sued personally, keeping your personal assets out of the reach of judgment creditors. However, if you do not obtain adequate insurance, someone may be able to come after your personal belongings in a lawsuit. Even if this is not a realistic possibility, you do not want litigation to interfere with your dream. Failure to have adequate insurance in place can drive you into bankruptcy when a major lawsuit arises.

Call your insurance provider to explore options to best protect your business. If a person does have a legitimate claim against your business, insurance will compensate them, protecting you from losing everything.

Likely, you put your heart and soul into your business. Take the additional measures needed to protect it! Contact Catalyst Legal today for a free consultation as to how we can help protect every aspect of your company.


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