Many clients come visit us only after they have received a complaint or a letter threatening legal action. Here are five tips to prevent litigation:
1. Use a Contract – and have an attorney draft it.
Far too often, small business owners and entrepreneurs fail to “put it in writing.” This may come as a surprise given that many of us are routinely inundated with agreements, terms and conditions, and policies – whether from a telecommunications provider or a website.
Small business owners, however, are more prone to operate on a handshake-deal. Handshake-deals are risky. Parties forget things, misremember things, or fail to recall important items. The varying levels of uncertainty associated with handshake-deals create opportunities for disputes and disagreements. Use a contract that you understand to mitigate against this inherent risk.
Better yet – have an attorney draft the agreement for you. A solid transactional attorney ought to be able to include important terms that the parties may have overlooked or disregarded. If preventing litigation is a paramount objective for the transaction, an attorney can draft alternative dispute resolution provisions requiring the parties to mediate or arbitrate a dispute without costly litigation.
2. Use Reasonable Terms.
Putting an agreement in writing does not guaranty that disputes and litigation will never arise. In some cases, the contract itself can be the impetus of a lawsuit. A one-sided contract, with unreasonable terms and conditions, is ripe for a breach. According to former GopherFootball Coach, Glen Mason, “a fair is where you go to buy a pig in August.” Contract terms do not need to be “fair” but they should be reasonable.
If one party to a contract sees the terms as unreasonable, then that party is more likely to find ways to breach the contract, not fully uphold its responsibilities, or seek to terminate or cancel the contract altogether. This often leads to disputes and litigation. Further, although each party holds differing degrees of bargaining power, unreasonable contract terms may not be enforceable in court. Thus, one way to prevent litigation is to use reasonable terms in your written agreements.
3. Communicate With the Other Guy – early and often.
Passive-aggressiveness is as much ingrained in the DNA of Minnesotans, as is our love of the Juicy Lucy (or Jucy Lucy). And much like a Lucy, our angst simmers inside us like the magma of cheese that erupts upon the first bite. Don’t be a passive-aggressive Minnesotan – communicate early and often with the other party to prevent litigation.
Open lines of communication in the early stages of a business relationship can lead to a mutually beneficial relationship. As the relationship progresses, keeping the other party in the loop about cost increases, change in key staff, or scheduling conflicts is one way to maintain trust and focus. Furthermore, pay attention to the tone used in your communications.
4. Examine Your Business Practices.
“It’s not you. It’s me.” Look in the mirror. Examine your business practices to determine what actions (or inactions) cause you to be sued.
Are you doing something that irritates other people? Does your business receive customer complaints? Are you properly licensed and regulated in your industry? Are your vendors, customers or business partners litigious by nature? Determine which aspects of your business agitate others or cause the most complaints – and seek ways to remedy the problem or mitigate the harm.
Further, conduct background searches of potential business partners to determine if they have a litigious history. If they are often embroiled in lawsuits, it might be wise to steer clear.
5. Being Practical Versus Being Right.
A prominent Minneapolis attorney was known to have a plaque adorn the doorway inside his law office that stated, “Lord, please deliver to me Clients with principles.”
At what cost is litigation really worth it? Business owners and entrepreneurs must make a “business decision” when faced with potential litigation. The fight to prove that you are right, both morally and legally, may not be in your best interest. Taking a practical approach to resolving disputes versus always trying to prove you’re “right” is another way to prevent litigation.
Bonus Tip. The only sure fire way to prevent litigation is to never start a business and avoid human interaction.