Now, there’s a lot that can go wrong for any company.
This may not seem like a particularly shocking statement on the face of it, but few of us stop to consider just how many types of legal disputes have the potential to arise for a business.
These can include disputes between:
- Two partners or joint owners of a business.
- A business and another business.
- A business and one or more of its employees.
- A business and one or more of its customers.
- A business and one or more of its independent contractors.
- A business and the federal or state government.
To make matters complicated, such disputes can involve three or more parties and can concern themselves with multiple issues at once.
Hopefully, none of these conflicts will ever arise. And business owners, we’ve found, do not generally like to give a lot of thought to legal matters. After all, when you’re trying to successfully create a business, you don’t want to concern yourself with getting lost in the legal weeds.
That said, it is a serious mistake for a business owner not to recognize the very real threat of a lawsuit in our modern society, and particularly in the state of California. We live in a state which is extremely friendly to plaintiffs and is not always the most business-friendly of environments.
No matter how big or small your business, it is very likely that one or more legal disputes will arise over the course of your career, making it is an eventuality well worth preparing for.
Now, business law is an extremely complicated topic, as you might imagine. Whole books have been written about it. We certainly won’t be able to cover every issue here. However, in this article, we will give you an overview of how such lawsuits arise and explain to you what your options are if you find yourself in a business-related legal dispute.
The Basics of Business Law
When Should I Hire an Business Attorney?
In dealing with business matters, it is important to be proactive. That is why we recommend hiring an attorney before any business disputes erupt.
Why? Well, as a business owner, legal issues are omnipresent. The law intrudes on just about every aspect of how individuals in our society do business, and it is extremely easy for a business owner to trigger one of the many legal tripwires which are out there.
To this end, you will need to have someone to consult with day-to-day about the myriad legal matters which may concern your business. This is a role that only a lawyer can fill.
As with many issues in law, an ounce of prevention is worth a ton of cure. Preventing a lawsuit is much easier than dealing with one. Once you are facing a lawsuit, a good lawyer can help you, but it’s better to avoid that entirely. Even the most quickly resolved lawsuit is a serious headache.
Just take it from this Entrepreneur magazine article, which advises business owners that “There are two professionals every business will need early on: an accountant and a lawyer.”
In other words, just as you hire an accountant to deal with all of the financial problems that may arise for you, rather than waiting until you go bankrupt or get audited by the IRS to seek financial help, you should hire a business attorney before getting sued.
Common Issues in Business Law
That said, there are a few specific situations in which you will almost certainly need the services of an attorney.
These include situations where:
You are drafting a partnership agreement, LLC operating agreement, or similar contract. The initial formation of a business will typically involve a contract of some sort, establishing the business’ most basic rules and procedures. In a corporation, the corporate bylaws serve the same purpose. When drafting this contract, you should always seek the input of an attorney to ensure that it is as strong and durable as possible, preparing for as many eventualities as possible.
Another party has used your intellectual property. While taking a live-and-let-live attitude might seem like a more peaceful way to go, the most successful businesses are extremely aggressive about protecting their intellectual property, including copyrights, patents, trademarks, and trade secrets. If someone steals the labor of your mind, you should not be shy about holding them accountable!
You get in a partnership dispute. Disputes between partners are extremely common; in fact, we’ve written an entire article about partnership disputes and how to handle them. You should make every attempt to work through your dispute amicably, but if this cannot be done, you will need an attorney.
You are sued for sexual harassment or for any form of discrimination, including discrimination based on race, sex, orientation, or disability. These are extremely charged issues in our society and you will need all hands on deck if you end up in this situation.
You are sued for premise liability. All sorts of injuries can happen on the physical premises of your business, from people injuring themselves by slipping and falling to becoming sick from asbestos or another toxic substance. These cases can be extremely costly, even for seemingly minor injuries.
You are sued for malpractice or professional liability. Contrary to popular belief, doctors aren’t the only ones who have to worry about these types of cases. A whole host of professions, including real estate agents, architects, accountants, consultants, engineers, care providers, and lawyers can find themselves in this situation.
You are sued for product liability. If your business is responsible for designing, manufacturing, or even distributing a product, you may find yourself on the wrong end of a product liability lawsuit. This is particularly dangerous territory because product liability cases involve strict liability: unlike with most other civil cases, the plaintiff does not need to prove negligence or intent on the defendant’s part. They will simply need to prove that a flaw existed and that flaw can be traced back to the party which made the product. These cases can also expand into enormous class action lawsuits with thousands of plaintiff at once.
You are engaging in a merger or acquisition. If you plan to merge with, buy, or be bought by another business, you will need an attorney to help you navigate these difficult waters. Here, you will have to contend not only with the other business, but also ensure that you are not running afoul of government antitrust law and other regulations.
Your business is acquiring real estate. Having physical premises is often necessary for a business, and there are all sorts of kinks in real estate law that you will need an attorney to help you through.
The stages of a business lawsuit are the same as those for any other civil suit. First, the plaintiff will hire an attorney and file a complaint with the court. Next, the case will enter into discovery, in which opposing attorneys may subpoena documents, depose witnesses, and so forth. If the case is not settled during this stage, then it will move to trial, at which point a verdict will be rendered, which may result in an appeal to a higher court.
Many business owners are understandably frightened of a lawsuit, particularly if their business is not very large. This might prompt you to feel as though you have no choice but to accept an unfavorable settlement out of fear of the alternative. After all, a costly court battle could run you out of business regardless of the facts of the matter and whether you did anything wrong.
Fortunately, some conflicts can be litigated in small claims court. Of course, such conflicts must be below the legal limit for what a small claims court can handle: in California, that means $10,000 if you are an individual and $5,000 if you are a business (depending on who is filing the suit).
Alternative Dispute Resolution
If your claim is too big for small claims court but you are still concerned about the cost of a trial, you should know that there are a few forms of alternative dispute resolution permitted by the state of California, which may allow you to resolve your legal case without going all the way to trial.
Mediation is the lowest level of alternative dispute resolution. It is typically employed when the parties still hope to resolve things amicably. Both parties in mediation work with a neutral third-party mediator to craft a mutually beneficial solution. Generally, this can be done without a lawyer.
Mediation only works in cases where both parties are acting in good faith, though, and if you’ve gotten to the point of considering hiring a lawyer it is probably too late for mediation to work.
The next level of alternative dispute resolution is arbitration. Like mediation, arbitration involves a neutral third party, known as an arbitrator, overseeing the case. In arbitration, however, the arbitrator actually makes a decision as opposed to simply giving advice. If you are engaged in nonbinding arbitration, then this decision can be appealed, but if you are engaged in binding arbitration (the most common type), it cannot.
In a sense, arbitration is something of a cross between mediation and a trial. The process is less ritualized than a trial. Hearsay and other types of evidence not permitted at a trial will be allowed in arbitration, and the decision of the arbitrator does not need to be based strictly in law. However, arbitration is like a trial in that it is a fundamentally adversarial process, with both parties attempting to win rather than to work together.
To engage in arbitration, you will almost certainly need legal counsel and a fair amount of preparation. Even so, arbitration has the potential to be a cheap and efficient alternative to a trial. In many cases, a skilled attorney will try to settle a case with arbitration rather than a trial, so as to resolve things quickly rather than dragging them out.
That said, arbitration is not always the right decision. Your goal in this process is to end a case beneficially as well as quickly. If you have reason to believe that arbitration will not go well for you, then it may be better to fight all the way to a trial, particularly if arbitration would be binding.
Although more expensive, a trial has a couple of potential benefits because of its more formalized structure: the court must adhere to the rules of evidence and the decision must be based in formal law and legal precedent. Also, unlike with binding arbitration, the defendant has the right to appeal.
Remember, the vast majority of civil cases, even those not involving arbitration, are still settled before trial! An attorney who can negotiate you a good settlement offer is just as good as one who can get you a favorable result in arbitration or in the courtroom.
As we said, an ounce of prevention is worth a ton of cure. Aside from hiring an attorney early on, there are a few steps every business owner should take to decrease the probability of a dispute arising.
First, when it comes to product liability, you should be rigorous in testing your products and ensuring that they are being manufactured safely. You should even make sure that the product is being mailed safely. If a product has a known danger, then you should affix it with a warning label.
Second, while we don’t expect you to have a lawyer’s familiarity with the law, you should read up on the relevant legal standards that will affect your business and develop a strong working understanding of how the law applies to you. A lawyer cannot be everywhere at once, and it is up to you to keep your eyes peeled for many legal dangers. In addition, do not sign a contract until you have read it and understand it – and preferably also consulted with legal counsel.
Third, you should keep meticulous written records of all contracts, policies, and even purchases that apply to your business. All of these records should be carefully organized and kept in a safe place, with copies made if possible. No agreement should be entirely verbal; at the very least you should at least get some email verification of everything that you and another party agreed upon. You’d be surprised how many costly legal disputes we’ve seen that could have been averted by the presence of a single written record.
Fourth, you should ensure that matters within the business are conducted with transparency. There ought to be a set of clearly delineated policies about when and how employees may be hired or fired, and these policies should be fair and conform to all applicable laws. Other procedural matters for how the business should handle itself internally, and how it should interact with customers and other third parties, should be similarly standardized into a comprehensible form. You should make certain that all of your employees understand these policies.
Finally, you should try to communicate with people. A lot of conflicts can be eliminated completely with just a little willingness to reach out and talk things over proactively and with an assumption of mutual good faith.
Attorneys and businesspeople are very different personalities. It takes one type of person to read through court cases all day, another to go out and form a business.
Rather than allowing yourself to be burdened with legal concerns, you should outsource those concerns to a business attorney. With the right legal representation, you can take a huge load off of your shoulders, and focus on handling important business matters without the looming, omnipresent threat of a lawsuit inhibiting you.
If you have any questions or concerns about some legal matter relating to your business, then call Bohm Wildish and Matsen today! We would be happy to talk things through with you.