When legal action is a business risk

Legal 101 for small business

Running a small business is demanding, yet extremely rewarding. This is why you need to protect your business and your livelihood from unnecessary risk that can damage your business and even bring it to a close.

Legal action—whether warranted or not—is a very real risk to businesses, including SMEs. Even if people do not have an honest claim to make against you, the cost of legal assistance to prove your innocence can be devastating to your business. Also, the toll it takes on your time and emotions can seriously hurt your business and personal time.

There are ways of protecting yourself from the burden of having legal action taken against your business, and a good lawyer and accountant will offer vital information in this regard. However, the best form of protection is to not give people a reason to sue you.

Take a step back and take a good look at your business and ensure you are not leaving your business exposed to legal action. Here are some points for consideration:

Circumvent problems early: In the case of a dispute or if you have a disgruntled employee or client, don’t let the issues fester. Don’t overlook problems or ignore conflict. Instead, address problems as soon as they appear. Sometimes it is better to accept responsibility or apologise, even if you are right, if it means avoiding legal action.

Documentation: Disgruntled employees can easily lodge false claims of incorrectly paid leave entitlements or promised promotions, bonuses or pay rises that never arrived. To protect yourself, retain electronic copies of all employee documentation, including notes from performance reviews and annual leave forms.

Public liability insurance: We live in a litigious society so it is critical to have public liability insurance in place that can cover us if someone takes legal action against you for being injured on your premises or if you damage their property while working on their premises.

Sexual harassment: Well publicised court cases have illustrated how expensive and disruptive sexual harassment claims and cases can be. If you have contractors or employees working with you then you should have clearly defined policies on sexual harassment. These policies must be communicated to all staff and contractors and strictly enforced.

Disputes over financial transactions: Check with your accountant the length of time you must keep certain documents. While the ATO requires records to be kept securely for five years, there are situations where records must be kept for longer. Keep all purchase invoices received from suppliers, sales invoices and all bank and credit card statements. These statements are proof that you have received payment or made payment.

Credit checks: When negotiating contracts for big budget projects, consider running a credit check on the client to be sure that you will be paid for your work. I recommend checking out Creditor Watch www.creditorwatch.com.au to identify the customers who won’t pay their bills before entering business with them.

Contracts and agreements: Never enter into an agreement without you having personal control. Control is choice, power and options. Do not proceed with work unless a contract or business agreement has been read, agreed to and signed by both parties. If it is a long-term or significant deal, have the signing of the contract witnessed by an independent person.

Avoid making enemies: Keep your word, stick to deadlines, operate with kindness, have a positive attitude and create a good atmosphere in your business. After all, happy staff will help lead to happy customers, which ultimately leads to a successful business that is less exposed to legal action.

Have you experienced legal action or successfully avoided it in your business? Share your thoughts below.

  • Hi rick, just wanted to comment on your last article.
    I’m being taken to court , as a result of being sued for ( adverse reaction) by an ex employee.
    I run a hair and beauty salon and to date it has cost me $20,000 and the ammont is growing , everyone needs to make sure they have super tight contracts in place.
    I am totally shocked and disappointed in our system and our government…… and the way these leeches can destroy one’s business and further more they can do all of this with solicitors who can assist them with the pre bonus system…. Even mediation was a waste of time ,s it is run by ex unions…. what chance do we have as employers… non ..

    Valerie parry

    • Betty boo

      Valerie parry; I’m unsure if you have actually read the article you commented on. My advise is to re-read. You purhaps would not be in the bind you are in if you yourself had followed simple rules and regulations and kept your employees happy. And treat employees like human beings. Too often employers think of them selves above everyone else. You do not make your own rules, you must obey rules, even if you do not agree with them. This article reads that you shouldn’t allow your business to get that far in debt with legal fees. Ensure you are doing the right thing by employees. It’s not the governments fault, or the lawyers or the ‘leeches’ but your own fault. An individual could not take it this far with lawyers without a leg to stand from. Take blame for your part in this and stop blaming everyone else. Once you see clearly you may finally find peace. Business owners should not be run by narcisstic personality disorders because they are their own worse enemy.