On average, a business making $1 million per year will spend about 2%, or about $20,000, per year in legal fees. That means many small businesses pay more, and some spend a lot more, than the average. Since every business needs to keep expenses down to survive, business owners need to recognize the most common legal pitfalls out there that result in litigation:
- Sued By An Employee: Employment disputes are some of the most common lawsuits that small businesses face because they come in many forms, including employment discrimination claims, wage claims, claims of unsafe work conditions and many more. Most often, such suits are based on some violation or misunderstanding of your business's employment practices.
- Infringement of IP Rights: Businesses often collaborate and share information either side may consider confidential. In fact, we highlighted the importance of drafting clear confidentiality and non-compete agreements in past blog posts on Vital Agreements Before Starting a Business and Creating A Valid Non-Compete Agreement. Often, without even thinking of the consequences, businesses invariably use access to confidential information in ways which may harm another business and the established business relationship. If your business is the victim of such practices, or if your business uses another firm’s or individual’s intellectual property, you may need judicial intervention to determine, if any infringement occurred, who may have been damaged, and, if so, what is the value of the damages.
- Business Misrepresentation: This is more commonly known as "fraud." While you can hope that your business will not fall prey to fraud, it is entirely possible that you and your business may be the victim of the deliberate, malicious acts of another. Alternatively, another may misinterpret your actions as misleading and fraudulent. In either event, many businesses end up in court addressing fraud allegations every year. To learn more about preventing fraud, please read our posting on Basic Ways to Protect Your NY Small Business From Fraud.
- Contract Disputes: Contracts are the life blood of every business. Often, small businesses forego the protections that well-written agreements afford them in order to expedite the execution of the agreement itself. We direct you towards our posting advising small businesses to Stay Away From Subjective Phrases In Your Contracts. Many business owners find themselves legally entangled by poorly-drafted, unclear contracts, incomplete agreements that do not contemplate a given result, or contracts where they agreed to terms that they didn't understand.
- "Think Before You Speak." We discussed this tip before in our posting about Staying Away From Subjective Phrases In Your Contracts. One misstatement spoken or in writing can mean the difference between a lawsuit and a thriving business relationship. Before uttering any phrase or releasing any statement, think about whether there may be any repercussions. Is that joke appropriate? Is that advertisement truthful? Staying vigilant and proactive saves money in the long run.
- "Ask Before You Act." If you want to avoid potential litigation, word and deed must go together. Even if you think you know what you are doing, it is always better to know what you are doing. Be risk averse. Hire an attorney with the right experiences and credentials if the issue is more complicated than you can handle.
- "Back Yourself Up." Purchasing insurance is a company's first line of defense from litigation. Depending upon the policy purchased, many different types of insurance may protect your business and its assets against litigation. Also, choosing the right legal entity for you is key to protecting personal assets.
- "Know The Law." Laws vary greatly, depending on the local laws in your region. Those in business in upstate New York need to worry less about the additional laws that apply in New York City, and vice versa. Basic knowledge of local obligations will inform your business's operations and keep you ahead of the litigation curve.
*Gene Berardelli may be contacted at: GeneBerardelli@ipglegal.com.
Gene is a New York street-smart attorney with an extreme passion for success. Gene specializes in litigation, arbitration and general corporate law for New York-based and international clients. He, also, is the host of a popular New York talk radio program.