As a business owner, you are usually run off your feet with the
challenges of operating your business. The last thing you need to worry
about is a legal problem. Many business people put off dealing with a
legal problem because they don't know where to turn, don't have the
time, or most often, are afraid of how much it will cost and how much
time it will take.
Legal issues come in many forms:
·
A customer failed to pay an account despite many promises. · You just
received a letter from a government agency. · You just found out that
your former manager has set up a competing business and has stolen your
best customer and one of your key employees. · You have just been sued
for $100,000. · Someone told you that one of your standard form
contracts won't stand up in court and you are worried about it. · You
have a dispute with your landlord. · You have a problem with a US or
European customer. · Your business has been defamed on the internet. ·
You just found that your warehouse manager has been sexually harassing a
female employee. · An employee is damaging your business but threatens
to sue if you fire him. You are not sure how to handle it. · You are
involved with a Workplace Safety Insurance claim.
These examples are just the tip of the iceberg of the kinds of legal issues business people run into frequently.
Tip #1 - Seek out legal help at the first sign of a problem
Suppose
a competitor has been passing off its business under your name and it's
costing you customers and sales but it's hard to estimate the amount.
Unless you act promptly, it may be too late to seek an injunction from
the Court. If you think you have a claim against another party under a
contract, a limitation period begins to run from the time the contract
is breached and usually expires two years later. It's not a good idea to
leave the claim to the last minute.
If you have an issue with an
employee who is working unacceptably, it's important to develop a legal
strategy as early as possible. The longer you wait, the more it may cost
your business.
The short point here is that it is important to
seek advice as soon you detect a problem and before anything has been
done to make it worse. Crisis management is always more expensive and
time-consuming than early response.
Tip #2 - Have a team of lawyers to call on when you need them.
Every
business should have a team of on-call lawyers. This is less expensive
or complicated than it sounds. All you need are the telephone numbers
and email addresses of trusted corporate, employment law and litigation
lawyers. Depending on the nature of your business, you may also need an
intellectual property lawyer, who deals with trademarks, patents and
copyright. You may even need a tax lawyer because not all tax issues can
be solved by an accountant.
If the amount of your legal dispute
is very small, such as a claim or complaint by a customer for $1,000 or
less, it will be uneconomic to hire a lawyer. Fortunately, there are
other helpful resources. The BBB has a dispute resolution process which
permits BBB businesses and their customers to resolve disputes by
arbitration or mediation. You don't need a lawyer and the only cost is a
small administration fee. More information about this process is
available on the BBB website.
If your case is in the Small Claims
Court ($10,000 or less), you might need a paralegal who specializes in
these kinds of cases. Paralegals are now regulated by the Law Society
but they are not lawyers and they are not a substitute for an
experienced lawyer.
Tip #3 - Learn what to expect when a dispute arises.
As
a business person, you have learned that success is often the result of
building relationships. The relationships you build with your lawyers
can be just as important to your business success as the ones you have
with your customers, suppliers, banker and insurance broker. A
relationship with your lawyer built on mutual trust and respect will
save you many sleepless nights over the years and probably make or save
you a lot of money.
There are several ways to find good lawyers for your business:
- Ask business associates or relatives if they have someone to recommend. If you get a recommendation, find out more about the firm and the lawyer by using some of the research methods below. · The internet is a very useful resource for finding a lawyer but you have to be careful. Any lawyer can list with various online legal directories. Anyone can have a flashy website. You have to move past the flash to find the substance.
- When looking for a lawyer on the internet, look for someone who has experience in the field you require. The first name on a Google search may not be the best choice. Some lawyers have written extensively about the law. This is a useful indicator of expertise and standing in the legal community.
- Some lawyers list cases they have been involved in on their websites. Broad litigation experience in complex business matters over many years is a good indicator of competence.
- The Law Society of Upper Canada (Ontario, Canada) has a lawyers' referral service. The service provides a name but you have to check the details out yourself. · The Law Society certifies specialists in several areas of practice. Certification as a specialist signals that the lawyer has achieved a higher standard of experience in his/her area but certification isn't mandatory. Many competent lawyers have long experience in a field without applying for certification. You have to decide if this is important to you.
- · If your problem is outside Ontario, find a local lawyer first. Many firms have networks with lawyers globally and are able to refer to lawyers in the USA or other countries. Refers between colleagues are often more effective.
When you call, don't expect the lawyer to solve your
business problem over the telephone. The first discussion is for the
lawyer to identify whether s/he can represent you and for you to assess
whether the lawyer appears to have the skills to deal with your problem.
If you have a legal problem the lawyer believes his/her firm can
resolve, an office meeting will be arranged.
In business matters,
lawyers customarily charge a consultation fee for the first office
meeting. At the meeting, the lawyer will give preliminary or urgent
advice and develop a go-forward strategy. The lawyer may be able to give
a partial fee estimate and will ask for a retainer to cover some of the
work. No lawyer can guarantee the outcome. At this early stage, there
are usually a lot of unknown matters. While the lawyer may be able to
give you a partial fee estimate in a litigation matter, it's impossible
to say with accuracy how much it will cost. It depends on too many
unknown factors.
It will be then up to you to decide whether or
not to hire the lawyer to represent you further. The decision you make
will depend on your sense of confidence in the lawyer. Has the lawyer
listened to you? Have your questions been answered? Does the lawyer
appear to understand your problem? Has the lawyer presented the risks
and downsides of your case? Every case has risks and costs. Beware of a
lawyer who tells you only what you want to hear without assessing the
strengths of the opposing party's case.
Some lawyers will accept a
monthly or annual retainer which entitles the client to telephone
advice a few times a month. More complicated issues require separate
engagements.
Tip #4 - The least expensive lawyer is unlikely to be the best person to handle your legal problem
Consider
this scenario: you are looking for a lawyer for a complicated lawsuit.
You call Mr. Jones, who answers on the first ring. You tell your story,
which has many facts the opposite party disputes. Mr. Jones says, "You
have a great case. I'm sure you're going to win." When you ask how much
it will cost, Mr. Jones says "Don't worry, you won't have to pay me
anything unless you win. Just come on down to my office and we'll get
started."
Beware of any lawyer who tells you this. While Ontario
lawyers are permitted to charge their fees based on contingency, i.e. a
percentage of the result, this type of fee arrangement is only rarely
applicable in business cases. It never occurs when facts are in dispute,
recovery is uncertain or if the amount is small.
When you retain a
lawyer, you need a trustworthy advisor, who will point out the
weaknesses of your case as well as the strengths. A litigation lawyer
who is waiting by the phone for your call and tells you exactly what you
are hoping to hear may be too hungry or too inexperienced to manage
your case. He may be in over his head and will bail out as soon as your
case takes a negative turn. By then, your legal situation may have
worsened. It will be more expensive and perhaps impossible to repair it.
Even
worthwhile cases require careful analysis and risk assessment. An
experienced litigation lawyer will typically do his by for fees on an
hourly basis plus GST and any out-of-pocket expenses necessary for your
case.
Good litigation lawyers are often in court, at mediation or
other litigation procedures, at meetings or discovery. However, good
litigation lawyers always call or respond by email within 24 hours. In
case of urgency or vacation, the lawyer will arrange for someone in the
office to contact you.
Tip #5 - Prevention is better and much less expensive than litigation.
Legal
problems are like computer crashes --- they are bound to occur, it's
just a matter of time. Unlike computer crashes, some lawsuits can be
avoided. Often, businesses owners deal with legal matters only when a
crisis arises. They look for the least expensive lawyer to draft their
leases, contracts, corporate and employment agreements without regard to
skill, competence and experience.
Sometimes, business owners
avoid legal steps like failing to make a shareholder agreement, failing
to file a trademark application or failing to prepare a non-competition
and non-solicitation agreement with a key employee. When served with a
lawsuit, they ignore or tear the papers up in anger. These business
owners will be caught short when the inevitable occurs. While litigation
or arbitration may still occur when there are written agreements in
place, you will be in a far more secure position if you have taken
precautionary steps before the dispute occurs. If you respond to
correspondence and legal papers promptly, you will be better protected
than if you ignore them.
Competent legal advice is available for
matters such as corporate organization, leases, the wording contracts
and other documents you use in your business, partnership and
shareholder agreements, your relationships with your employees, your
company's trade names, logos and website, your regulatory compliance,
your risk management and litigation prevention techniques. It's all
important to arrange legal affairs to ensure that your personal
liability is limited in the case of a claim against your business.
Ensure
that the legal issues affecting your business are in good order. This
is likely to save you a lot of money and grief in the future. You might
even consider having a legal audit or a "business legal checkup". We
plan to write about this topic in a future article in this newsletter.
Preventative legal advice may be expensive but it is just as important
as fire insurance.
Tip #6 -- Don't assume that 'going to court' means 'going to trial'
If
you haven't been involved in litigation before, you may not appreciate
that more than 90% of cases settle before trial. While a trial (or even
an appeal) is not always avoidable, lawyers use techniques to try to
resolve cases at earlier stages. Business people are looking for
certainty and to limit expense and exposure.
It's never a bad idea
to negotiate a settlement with the opposing party but the timing and
approach will depend on the case. It is best to negotiate from a
position of strength. This may mean holding off negotiations until
enough facts and documents have been disclosed to favour your position.
Mediation
is another technique lawyers use to achieve settlement before trial.
Mediation involves a neutral mediator, who is usually an experienced
lawyer, acceptable to all parties. The parties and the lawyers prepare
briefs to explain their positions to the mediator. On the mediation
date, after an opening session, the parties retire to separate rooms.
The mediator will "shuttle" between the parties until an agreement is
worked out or an impasse is declared. This process produces a high rate
of settlement even in very complicated cases.
Tip #7 - Understand the risks of the litigation process: Why do lawyers emphasize settlement?
Even
if you have an airtight case, your lawyer will still recommend
settlement. Lawyers assess risk every day. Even the most airtight case
could have problems at trial. The judge may prefer the evidence of the
opposing party over yours. The other party's expert witness may be more
persuasive than yours. These are just two of many possibilities. A trial
is always a last resort.
Another good reason to settle is that even if you win at trial, the case may not be over because
- The legal costs awarded by the court to a successful party are only a partial recovery of the legal costs payable to your lawyer. · If you lose at trial or if the opposing party does better in court than their settlement offer, you will have to pay a portion of their legal costs. · There may be an appeal which could delay payment for two years or longer.
- Until a final judgment is granted, a defendant is rarely prevented from dealing with his property - unless the property is the subject of the lawsuit (or some other exceptional situations).
- The judgment may be unenforceable. The opposing party may be insolvent or go bankrupt. You might not collect anything. · The defendant may conceal his assets or transfer them to family members to make the debt difficult to collect. A separate lawsuit may be necessary to find the defendant's assets or to declare the fraudulent transfer void.
- The defendant may have assets outside Ontario. A lawyer in the jurisdiction where defendant's assets are located may have to be retained to collect the judgment.
A settlement involves a resolution both parties can live
with. If the case involves the payment of money, there won't be a
settlement unless payment is made.
Even with these concerns, some
cases can't be settled. The positions of the parties may be so far apart
that a trial is necessary. As the case progresses, you and your lawyer
will have to revise and update your strategy and estimate the legal cost
and risk of each stage of the case. Keep in mind that the opposing
party is dealing with similar risk assessment and cost issues as you
are.
Tip #8 -- Be a good client.
From a lawyer's perspective, a good client is a business person who does the following:
- Presents all the facts of the case fairly without exaggeration or deception. Tell your lawyer everything; not just the facts that help you. The rest of the story always comes out and usually with adverse consequences. · Considers the lawyer as a trusted advisor and advocate.
- Has a well-organized set of relevant documents.
- Provides other documents and information promptly when requested.
- Accepts that every case has weaknesses and works with the lawyer to develop a strategy to minimize the weaknesses.
- Recognizes that the lawyer cannot guarantee the outcome but can only provide effective advocacy to produce the best result, often as a result of negotiation or mediation.
- If an examination for discovery or trial is required, takes the time to prepare to testify.
- Asks for clarification on all matters that are unclear.
- Understands that in litigation matters, it is impossible to predict the fees accurately but that the lawyer will gladly provide estimates of imminent steps in the case.
- Pays retainers when asked and settles interim accounts promptly when rendered.
- Considers the lawyer's recommendations carefully and provides reasonable instructions.
One of our firm's clients is a technology business which
started as a family operation and has grown to the point that its brand
is now accepted and recognized globally. Our client's president knows
hows to get the most out of his professional advisors. He is always
respectful, trusting of professionalism, intelligence, experience and
competence. He is prompt in responding to requests for information,
appreciative of good advice and excellent service. He works hard but he
usually has a happy and cheerful attitude.
Our client expects is
professional advisors to have the same enthusiasm for their work as he
does for the operations of his business. And another small matter: our
client pays every professional account within 48 hours of receipt. He
believes that if he had to challenge his lawyer or accountant's bill,
the professional relationship is not a healthy as it should be. Our
client expects fair treatment, excellent service, sound advice, creative
strategy, experienced advocacy and determined, no-nonsense
negotiations. And he gets all of them in spades! A lot of business
people who are dissatisfied with their professional advisors could learn
a lot from him.
These tips offer no assurance that your legal
matter will turn out exactly as you expect. However, by following our
suggestions, the resolution of your business dispute is likely to be a
less expensive, less time-consuming and less stressful experience and
possibly more successful. Keeping your business legal affairs in good
order permits you more time to focus on making your business flourish.
Igor Ellyn, QC, CS and Orie Niedzviecki are partners of ELLYN LAW
LLP Business Litigation and Arbitration Lawyers, a Toronto law firm,
established specializing in dispute resolution for small and medium
businesses and their shareholders.
