I still remember my first client — a 21-year-old, eager, well-respected airman who was hanging out with the wrong crowd some Saturday night and experimented with marijuana.
I was serving as area defense counsel in Phoenix, Arizona, where I was responsible for the defense of young military members. He came to my office on a Monday morning, just after his commander presented him with criminal charges. The young man was devastated. He was so disappointed in himself, having tarnished his reputation and let his unit down. After wiping away tears, he told me he wanted to give a speech to other members of his unit.
His message: Always consider how the decisions you make today will affect your life tomorrow.
That sage advice applies to your small business. Consider the following decisions you can make today to avoid litigation tomorrow.
Put it in writing
With limited resources and even less time, small business owners may overlook the importance of formalities like drafting written contracts and requiring the signature of all parties. Mind you, not all agreements need to be in writing to form a contract. However, a written contract may help avoid the time and expense of litigation.
When all the terms and conditions of an agreement are in black and white, there is less chance for confusion and disagreement. Similarly, when faced with a difference of opinion, another individual or business may be deterred from filing a lawsuit if a written contract sets out each party’s responsibilities. Finally, a written contract is an attorney’s best ammunition against a frivolous claim and may be used to win a motion to dismiss the case.
For these same reasons, take the time to summarize oral conversations and agreements in writing. A quick email to the other party to a contract, summarizing what you have discussed, can confirm your agreement while also discouraging litigation.
Choose your words wisely
Speaking of oral agreements, be mindful of the representations you make to clients when forming them. Not only could your business be on the line, with false representations leading to costly litigation, but your reputation is at risk, as well.
Approach employee relations with similar caution.
In Michigan, all employment relationships are presumed to be “at will,” unless there is an agreement to the contrary. The “at will” presumption may be rebutted where there is evidence of a legitimate expectation of “just-cause” employment.
For example, in a federal case in the Eastern District of Michigan, the court found that a statement made at a staff meeting after another employee had been fired — “we don’t fire you, you fire yourself” — could amount to a promise of just-cause employment. Therefore, in addition to choosing your words wisely, consider periodic written acknowledgments of the “at will” relationship to be signed by each employee.
Finally, conduct regular reviews of your employee manuals. The manual can be your best friend or worst enemy, depending on its contents. With local, state and federal law changing regularly, it is important to conduct a routine audit of any written policies.
Plan for the worst
Just as even the best-laid plans go awry, even the best-intended businesses get sued. Small business owners can insulate themselves from harm through three simple actions:
1. Separate yourself from the business. Establish a separate legal entity through which your business can operate without exposing your individual assets.
2. Insure your business. Find an insurance professional who can help you plan for the unknown and unexpected.
3. Work closely with a competent legal team. Interview attorneys before you start your business. Find one who knows the law. Hire someone you trust.
One military defendant’s advice
I’ll never forget watching that young airman take the stage in front of his entire unit, all standing at attention in their dress blues. In hindsight, he wished he would have made better decisions and planned better for his future.
The stakes are just as big for small business owners. Always consider how the decisions you make today will affect your life tomorrow.
Joshua Traeger is an attorney with Kreis Enderle. He has served as a senior military prosecutor, taking criminal cases to trial in federal courts around the world.