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14 Simple Steps to Avoid Litigation

The most effective way to cut attorney cost? Take steps to prevent being sued.

By Frank G. Salpietro, Esq.

 

Litigation is time consuming and expensive. Litigation is distracting. Litigation can affect employee morale and damage your business reputation. By implementing a few common sense tips, you can lessen your risk of being sued. Even if litigation is unavoidable, following these steps will put you in a stronger position.

Limit your liability structurally. Often, the choice of entity can make all the difference. Business owners have a number of options: sole proprietorship, partnership, limited partnership, corporation, limited liability company. Looking ahead to how you want to grow your business may help to dictate the right entity. It may also be helpful to engage an attorney to discuss the pros and cons of the various choices. Keep in mind that some structures have periodic or even annual reporting requirements; be sure to follow through on formalities.

Never choose a 50/50 proposition. As they say, “the path to hell is paved with good intentions.” The business can be structured to separate ownership from operational responsibilities, but may still present dangers to the health of the company and even to the relationship between the owners. It is wise to avoid a situation that could lead to a stalemate should the two equal partners disagree on an issue that could impede business and require legal intervention for resolution.

Get insurance. And lots of it. Broad coverage may mean you need to take out several policies to safeguard against a myriad of possibilities. Consider comprehensive general liability (CGL), employment practices liability (EPLI), errors and omissions (E&O) coverage. Talk with an insurance agency about these and other possible options – there may be specialized coverage for your industry. A single claim can destroy a business; excess insurance is cheap in comparison.

Put it in writing. While oral contracts are legal and binding in PA, they can sometimes be hard to prove in court. As movie mogul Samuel Goldwyn said, “A verbal contract isn’t worth the paper it’s written on.” Play it safe and put agreements – ANY agreements – on paper, and not just when you are in the role of business owner but when you are the customer as well. Even a simple confirmation by email or letter is better than nothing, and it will go a long way in avoiding misunderstandings and litigation. Be sure to include any later amendments and variations which occur later.

Limit your liability contractually. You may not have a crystal ball, but there are steps you can take. You can often anticipate areas that might be disputed. You also can choose and/or negotiate the terms on which you do business by defining your business responsibilities and those of your customers, partners, and vendors.

Plan (ahead) for the worst. Don’t wait until there is a problem to call in a professional. Consider it an investment in your business to build a team of professionals – including insurance, banking, accounting and legal – at the onset (or as soon as possible). Be proactive. No one likes paying for professional services but it almost always less expensive to hire them to keep you out of trouble than to pay to get you out of trouble. Plus, assembling a team early gives the advantage of them knowing and understanding your business.

Train your staff. Your staff are your allies and on the front lines. Invest in them. Help them to know your business and your expectations. Foster a culture of honesty and transparency. Train them to spot potential liability events and to bring those events to your attention without fear of being penalized. You may even want to consider annual training, company retreats and an employee handbook.

Know your business partners and clients. It is tempting to take any business that comes through the door, especially when first starting out. Research and give thought to with whom you want to do business and develop your marketing to pursue those people and businesses. If relationships start to sour, draw the line early and don’t be afraid to end bad relationships.

Read. Do not rubber stamp agreements. Read them thoroughly. Don’t be embarrassed to ask for clarification on parts you don’t understand or language that seems vague. Challenge agreements that don’t adequately address your interests. Memorialize any disagreements (see “put it in writing”) and, at the minimum, identify possible issues that may come back to haunt you.

Keep good records. This is a corollary to many of these tips. Don’t just do the right things; organize them and keep them accessible and concise. Should you be faced with a lawsuit, good records can tip the scales in your favor.

Keep clients and customers in the loop. Communication is one of the best ways to avoid conflict and misunderstanding. Inform clients and customers of cost increases, budgets, and scheduling. Return calls and deal with unhappy people politely and promptly. Pent up anger and frustration can quickly be blown out of proportion, so don’t let things stew. You may want to consider regular reviews and communications to unearth small issues that could become big issues down the road.

Walk a mile in their shoes. When faced with an unhappy customer, employee or partner, try to understand their perspective. This can be incredibly difficult to do but it helps to understand what is motivating their unhappiness. Responding defensively and without considering the other side can escalate the disagreement and lessen the chances of an amicable resolution.

Be proactive. Don’t ignore complaints and take immediate steps to deal with hiccups. The longer things are left unaddressed, the more difficult it becomes to resolve them. Bring things to a head early and engage professional help if needed.

Be honest. Be honest with others and with yourself. Honesty = integrity = consumer confidence = business success.

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