Business is associated with a share of risks. Litigation is one of the greatest risks that companies are exposed to nowadays.
Whether it is a small startup or a multinational, a legal conflict may occur without prior notice, and these may be resolved at a very high cost, ruined reputation, and wasted resources.
Knowing the usual reasons behind the litigation of businesses – and taking proactive actions to avoid it, will save your company time and money.
Top Reasons Businesses Face Litigation
Breach of Contract
Business relationships are based on contracts. A contract made badly or not understood can easily result in conflict whether with clients, vendors or even employees. One of the most common sources of litigation is through breach of contract claim.
Prevention Tips:
Make all the contracts clear, detailed and legal.
Incorporate particular words on delivery, schedule, payment as well as dispute resolution.
Periodically reread contracts with an experienced lawyer in order to respond to the needs of the business.
Employment Disputes
Another source of litigation is in the work place conflicts. Favoritism, unlawful dismissal, harassment and payment disputes can all result in suits. Even well-developed HR policies cannot save even companies.
Prevention Tips:
Instructions Develop and implement employee handbooks.
Give training to train managers and employees on workplace policy and anti-discrimination policy.
Keep proper comprehensive records of hiring decisions.
Intellectual Property Violation
As companies become innovative, chances of violating the intellectual property of another business (IP) are high. The copyright, trademark, and patent litigation are expensive and time-consuming.
Prevention Tips:
Do effective IP research before introducing products or services.
Register trademarks, copyrights and patents of your own to secure what you have.
Consult legal advice during entry into new markets or in developing products like those of the competitors.
Regulatory Non-Compliance
Lack of adherence to federal, state, or local laws may subject businesses to litigation and huge fines. This is most applicable in sectors such as the healthcare sector, finance, construction and food service areas where policies are strict and changing continuously.
Prevention Tips:
Be familiar with all the relevant laws and regulations.
Have compliance programs and frequent internal audits.
Seek the legal advice when introducing new products, services or conducting business.
Consumer/Customer Complaints
Companies are finding themselves being sued by consumers on account of fraud, misrepresentation, defective goods, or warranty. Legal action can be advanced even by minor errors in the advertising or labelling of a product.
Prevention Tips:
Make sure all the marketing materials are factual and clear.
Create effective product and service quality control.
Respond to complaints quickly and competently and keep records of resolutions.
Partnership or Shareholder Conflict
The common type of litigation occurs between business partners or even shareholders who may disagree on what they were entering into or even their vision of the company.
Prevention Tips:
Draft clear partnership or shareholder agreements with a description of the duties, distribution of profits, and exit strategies.
Make frequent meetings to ensure open communication.
Take into account mediation or arbitration provisions to solve conflicts before they degenerate into lawsuits.
Negligence and Liability
A business organization that does not demonstrate reasonable care to the customer, customer and employee can be held legally responsible in the case of injuries or damages. Lawsuits can be brought about by slip-and-fall incidents, professional errors and unsafe working conditions.
Prevention Tips:
Ensuring good safety measures and employee training programs.
Get relevant liability insurance
Perform routine risk assessment to determine and deal with any threats.
Final Thoughts
Although there is not a single business that can avoid Litigation Vs Arbitration, being aware of the most frequent causes and, most importantly, actively preventing them is a major step towards decreasing the number of litigation cases.
Hiring legal advice, keeping records straight and placing compliance at the centre of business development are not only defensive measures, they are key ingredients to a sustainable business development.
Pro-active behavior has the potential of transforming possible litigation into a better course of contracts, superior work practices and enhanced client-partner relations. Preventing instead of expensive litigation is always desirable in the modern competitive business world.
