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Five Legal Problems and How to Avoid Them

publication date: Jan 4, 2021
author/source: Barbara Weltman


Small businesses are often sitting ducks for money-hunters seeking awards or settlements. Some may be real, others bogus, but all are costly in terms of time, legal fees, and payouts (if the business loses or settles). Knowing the problem spots can help you devise strategies for avoiding trouble.


Five Legal Problems and How to Avoid Them

By: Barbara Weltman

Here are the key problem areas and some ideas for staying out of trouble.

1.  Employee theft and fraud
According to the bi-annual survey by the Association of Certified Fraud Examiners (ACFE), in 2008 businesses lost 7% of their revenue to fraud. Unfortunately, because of having fewer or weaker controls in place, small businesses (fewer than 100 employees) are less likely to discover problems than their larger counterparts; they suffer median losses of $200,000 compared with $116,000 for companies with 1,000 employees. The most common small business fraud schemes that small businesses fell victim to were check tampering and fraudulent billing.

Strategies: Hire right and avoid employees that might give you trouble. Do careful background checks and restrict access to financial information. Find more tips about this at SCORE. Also, make it clear to your staff that you will pursue legal action, including a criminal complaint, for any employee theft or fraud.

2. Employee workplace issues
Employees can and often do bring claims against an employer for a variety of grievances, including sexual harassment, discrimination (based on age, gender, race, or national origin), and wrongful termination.

Strategies: Make company policy very clear to staff. For example, communicate that sexual harassment won't be tolerated and provide procedures for lodging complaints and investigating complaints; then follow up on all complaints in accordance with your procedures. Include the company policy in your employee manual and have each employee sign a statement that he or she has read the manual.

Also, consider carrying employment practices liability (EPL) coverage as protection in case actions can't be avoided. Having coverage means the insurance company's attorney will defend you against covered claims by employees or former employees (you are, of course, free to use your own attorney) and will pay claims to the limit of your coverage.

3. Contract disputes
Ever hear the expression "not worth the paper it's written on?" Unfortunately, too many agreements that are written down fail to adequately reflect the intentions of the parties or include all the necessary terms and conditions. You'll want to have written agreements among co-owners (e.g., buy-sell agreements), with vendors and suppliers, and often with customers and even some employees.

Strategies: Work with an attorney so your position is properly protected. (If you draft a contract using online resources, be sure to have it reviewed by an attorney before you sign it.) Don't rush the contract process. When doing business with larger organizations that present contracts to you for signing (usually on a take-it-or-leave-it basis), take the time to have it reviewed by your own attorney; doing this won't kill the deal.

4. Nonpaying customers
If you have sold goods and services and aren't paid promptly, you'll wind up with collection problems. This can lead to the need for a lawyer's letter to the customer or to take a nonpayer to small claims court. In any event, you'll never recover the full amount owed to you and you'll have to spend considerable time on collections.

Strategies: Don't be a banker for your customers; make them pay in cash (or with a credit card, PayPal, or other similar payment method) at the point of service or delivery. If you must sell on credit terms, verify that your customers are creditworthy when large sums are at stake. Also, adopt efficient collection policies, including immediate contact once payment is delinquent.

5. Personal injury actions
Slip-and-fall cases and other personal injury actions are easily brought against small businesses. Claimants may believe that even if claims are bogus, these companies will settle rather than fight.

Unfortunately, all too often these claimants are right. The cost of personal injury actions against small businesses is staggering -- small businesses bear 69% of business tort liability costs while collecting only 19% of business revenue. Find a citation for this and other appalling statistics about the cost to our economy and small businesses here.

Strategies:  Make your premises as safe as you can. Recoveries are allowed only if it can be shown that you have been negligent. For example, look for possible trip-ups, such as torn carpeting or exposed wires in areas visited by the public. Have a risk-management assessment performed by your insurers, OSHA (the Occupational Safety and Health Administration), or someone else to help you find potential problems; then you can fix them.

Make sure you have adequate liability coverage for such incidents. If you sell your own products, make sure to carry product liability coverage.

Read more: http://barbaraweltman.com/articles/legal/legal_article_details.asp?id=91#ixzz1xhnb9Zsu

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