If you're a small business owner, you know it can be challenging to balance the day-to-day operations of your business with ensuring ongoing legal compliance, employee well-being, and other key priorities.
Without the resources of a larger company, detecting potential causes of dispute and enforcing preventive measures to avoid the escalation of any issues is not always easy.
Legal disputes can arise from a multitude of things, making them difficult to protect against entirely without the right legal support. From employment disputes to regulatory issues, various problems can arise during the operation of small businesses.
This guide details everything you need to know as a small business owner to combat legal disputes with confidence. From obtaining sound legal advice for small businesses to implementing robust risk mitigation strategies, uncover our top tips on how to navigate legal disputes as a small business owner.
Early Action and Preventive Measures
Before you can focus on navigating legal disputes effectively, you must have a clear understanding of the types of legal disputes that might emerge for your small business and the most effective ways to prevent them.
Types of Legal Disputes
Common types of legal disputes for small businesses include:
- Contract disputes: These often arise from disagreements between business owners and their suppliers, customers, manufacturers or service providers. Generally, this type of dispute occurs when one party is not fulfilling their end of the contract, or when someone discovers that your contract contains errors or non-compliant terms.
- Premises liability: As a small business owner, you are responsible for any injuries that occur on your business property. If someone gets injured or their property is damaged on your premises, you could be liable to pay for repairs, medical bills, lost wages and more.
- Employment disputes: Common causes of these disputes include wage or overtime disagreements, harassment and discrimination.
- Product or service liability: These types of disputes surface when the product you sell or the service you provide harms someone, usually a consumer or customer. They can arise from things including manufacturing faults, a lack of safety warnings and poor quality service.
- Compliance and regulatory disputes: Most businesses must adhere to strict rules as set out by government bodies and agencies. Failure to comply with regulations can lead to fines and legal issues.
How to Mitigate Risks
The most effective way to navigate legal disputes is to avoid them altogether. While there is no one way to mitigate the risk of a legal dispute entirely, you can do things to help prevent disputes from emerging.
Here's how to prevent lawsuits as a small business owner:
- Draft and review contracts carefully: Contracts serve as the backbone for most of your business relationships, and ensuring they are accurate, compliant and checked by a business or legal professional can help avoid contract disputes.
- Implement and enforce company policies: Through thorough employee training and strong management, your business should enforce company policies that align with your company's legal requirements.
- Practice employment law compliance: Make sure you are up to date on wage and hour laws, compensation laws, discrimination laws and employee classifications.
- Create a risk mitigation plan: Your plan should incorporate risk identification and early detection, risk elvaluation, mitigation strategies and contingency plans for preventing escalation.
Alternative Dispute Resolution
Even with the most proactive risk mitigation strategies in place, legal disputes may still surface. If you need to navigate legal disputes as a small business owner, an attorney or legal professional can help protect your legal rights, safeguard your business interests and guide you through the process.
Alternative dispute resolution (ADR) methods are the first things you should try when a dispute is escalating. There are three types of ADR, all of which offer a less confrontational and more cost-effective alternative to litigation.
Negotiation
At the least confrontational end of the dispute resolution spectrum, we have negotiation.
Sometimes, you can settle disputes through simple communication between you and the other party, where you both have the chance to air your grievances and work together to find a solution.
You can negotiate with or without an attorney. Negotiation can help to resolve a dispute without spending time, effort and money on a formal legal process.
Although negotiation is often considered part and parcel of business management, if you are negotiating with another party about any form of disagreement or potential dispute, whether you realize it or not, you are already in the midst of the ADR process.
Mediation
Mediation involves having a neutral third party, preferably a professional mediator, who helps the two parties come to a consensus without proceeding to litigation.
A professional mediator can work with both disputants to understand their differing points of view and attempt to bridge the gap between their conflicting positions, to help the parties reach a fair compromise without imposing a solution themselves.
Mediation is an effective form of ADR for those who need to discuss their queries or complaints openly but require a third party to ensure a fair outcome — the outcome of a mediation generally being nonbinding.
Arbitration
In arbitration, a neutral third party acts as a judge to help resolve disputes that cannot be resolved through negotiation or mediation services.
Somewhat like a court proceeding, arbitration requires the two parties to present their cases. However, instead of a judge, an arbitrator presides over the hearing, decides the outcome and delivers a binding solution.
Unlike in a court of law, the arbitrator's decision is not necessarily based on legal precedents and statutes, but rather on what they consider fair and just, having considered both sides and each party's evidence.
Generally, arbitration cases are resolved and concluded within 90 days.
Once a dispute has been resolved through arbitration, both parties automatically waive their right to sue the other party in court for any claim related to that dispute. However, if one party fails to comply with the arbitrator's decision, the other party can obtain a court judgment to enforce that decision.
Litigation
If a dispute escalates to the point where it cannot be resolved through ADR methods, you may need to go to court. In general, you should approach litigation as a last resort.
Litigation typically establishes you as the defendant and the other party as plaintiff, and you will bring your dispute before a judge and jury.
Similar to an arbitrator, the judge and jury will weigh up the evidence and inputs from both parties to make a binding ruling.
Sometimes, lawyers can negotiate a settlement without going to trial, but where this is not possible, trials can be a lengthy and damaging process.
What to Do if You Are Sued as a Small Business Owner
If ADR methods won't suffice and if someone sues your small business, there are steps you should follow to protect your business and legal rights.
- Review the case with an attorney: The first thing you need to do is review your lawsuit with an experienced attorney — preferably, one with experience in representing businesses.
- Cease communication with the other party: Once a lawsuit has been filed, you must not have any direct contact with the plaintiff. Anything you say can be used against you in court and may be detrimental to your case.
- Inform your insurance provider: Depending on the type of claim made, you could be covered by your business or liability insurance policy.
Protect Your Company With BCA Small Business Legal Services
If you want to know how to get ongoing legal support on a budget as a business owner, you've come to the right place.
The Business Membership plan from Business Consumer Alliance includes comprehensive legal support, covering contract services, insurance reviews and asset protection, as well as our arbitration services.
Protect your business on a budget, with confidence — become a BCA member today.