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Keys to Protecting your Business from Litigation

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As a business leader, chances are you’re aware of the risks associated with litigation. With the multitude of local, state and federal regulations, there are ample opportunities to get into trouble if one isn’t aware and prepared.

So, what are the most common causes of potential litigation - and what steps can you can take to prevent (or at least minimize) their impact?

The most common legal problems stem from the areas you deal with most frequently, including:

  • Employee-related lawsuits
  • Business-to-business litigation
  • Breach of contract disputes
  • Intellectual property disputes

Of the above, employee-related lawsuits are most common. According to the EEOC, employee-related lawsuits comprise almost 75% of all suits filed against businesses today, with 40% of all employment practice claims filed against private employers with between 15 and 100 employees.

What can you do to minimize your risk in these specific areas?

Employee-related litigation

  1. Have a documented employee handbook detailing expectations and policies including:
  2. Compensation
  3. Time off
  4. Disciplinary processes
  5. Grievance procedures
  6. Employee performance review policies and schedules
  7. Be consistent with employee treatment. Trying to be compassionate or help a deserving employee that has made a mistake is setting a precedent that can come back to haunt you.
  8. Train your managers and supervisors in all areas of employee interface including:
  9. What you can/can’t ask in an interview
  10. EEOC policies
  11. Sexual harassment laws
  12. Privacy standards and practices
  13. Create and manage personnel files containing all pertinent data including performance appraisals and any warnings or notifications of poor performance.
  14. Evaluate honestly and consistently. One of the more difficult things for managers is to discuss substandard performance with an employee. Documenting clearly where an employee is not meeting expectations, and documenting a performance improvement plan with clear goals and milestones can go a long way in preventing unlawful discharge lawsuits. Having poor documentation of poor performance and terminating an employee is one of the most common (and costly) mistakes.
  15. Communicate regularly with all levels of employees. Encourage an “open door” policy.
  16. Make sure your management team understands why you have an open door policy so that they don’t view it as a threat or feel undermined.

Business-to-business litigation

Joint ventures, outsourcing, or other kinds of partnership arrangements are a good way to keep costs to a minimum while sharing expertise. Again, planning and documentation on the front end can minimize problems down the road. These agreements have to be a win/win for both parties or they invariably come unraveled. Here are some steps to achieve success in this area:

  1. Start with a clearly documented statement of work detailing expectations of both parties. Lack of upfront preparation is a common pitfall. Often a company doesn’t know all of the expectations when they enter an agreement, so they purposely leave it vague. The statement of work should outline clear goals, timed milestones and deliverables, and outline regular review meetings scheduled to discuss progress.
  2. The master agreement should contain, as a minimum:
  3. A process to update the statement of work for those items that are missed in the original document, along with a process for schedule and cost adjustment.
  4. A documented process for addressing substandard performance with a pre-agreed upon cure period.
  5. A breakup clause whereby, if all else fails, either party has the option to terminate the agreement with proper documentation and notice, with termination costs clearly spelled out.
  6. Confidentiality and a non-compete agreement that prevents unauthorized use of confidential material gained from a partnership.
  7. Be fair and open with the partner. A business partnership is like a marriage and should be approached with the same openness and communication for it to work well for both parties.

Breach of Contract Litigation

Some of the areas that can protect you with breach of contract litigation are covered in the sections above. Be clear and honest regarding your expectations. Document deliverables and milestones. Communicate and review progress regularly. Make sure you have competent legal council review all documentation and take the time to understand it. Don’t assume because your lawyer looked at it, so it’s fine. You know your business and expectations better than anyone. Don’t rely on your attorney alone to fully understand your needs or concerns.

Intellectual Property Litigation

There are two areas that result in most intellectual property issues:

  1. Shared IP: In joint ventures or outsourcing agreements where existing IP is shared, make sure ownership is clearly defined as well as what the non-owning party is entitled to do with the IP. Even property protected by patent or trademark is open to risk by a party “reverse engineering” another companies work. Protect yourself with a strong non-compete agreement for a period of time after the termination of the partnership.
  2. Ownership: Make sure it’s clearly understood who owns any IP developed during a partnership. If you’re an employer, make sure your employment agreement clearly defines who owns any IP developed by a company employee during their employment period.

Most litigation can be prevented by good due diligence and documentation on the front end, consistent application of policy, and open communication. Having a good working relationship with an attorney that understands your business can also be invaluable.

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