5 Contract Tips for Avoiding Litigation

Learn the mistakes that could cost your business millions.

By Sean Callagy, Founder and President of Callagy Law On Oct 28, 2014

The unwanted visitor hands you a stack of papers and says, “You have been served.” Your heart sinks and mind races. What will this cost? How long will this take? Why would someone do this? This happens every day to people just like you. Your cost can be tens of thousands to upwards of a million dollars.

Many business owners see the world of “litigation danger” as a function of bad luck and out of their control. They are mistaken. You have the power to dramatically reduce the risk of a lawsuit and contain costs.

Other than insurance covered injury, suits flow from a failure in one of four types of your relationships: outside vendors; clients; employees; and co-owners.

However, the basis for the problem in these relationships was created in the beginning, when things were great; not now, when the suit is pending.

What can you do about all of this? Quite simply, follow these five critical steps.

1. Take the time – at the beginning, when both parties are happy and positive – to have written contracts in each of the four key relationship areas. Incorporate virtually everything into your agreements.
2. Do not let anyone rush you through the process or talk you out of all that “lawyer stuff.” You will spend exponentially more money later if you do not take the time to make the investment today to protect your business.
3. Two key clauses to remember – The most overlooked clause that is the great equalizer is a well-crafted fee shifting provision (who pays for attorney costs). This is the most underutilized tool in keeping parties out of lawsuits and containing litigation costs. Simply put, fee shifting keeps people more honest.
   In addition, arbitration clauses can be of great value. In light of a recent New Jersey Supreme Court case, the language must be very specific and include an express waiver of a right to a jury trial.
4. Review what you already have – even if you implement these changes going forward. What about your existing agreements? A review is essential to see what you have, especially with other owners.
5. Seek the advice of an attorney who has an in-depth understanding of all of these issues. Do not rely on your own counsel.

Not wanting to deal with this issue is completely normal and understandable; not dealing with it is also horrendously foolish and dangerous for your business.

At best, litigation is frustrating, costly, invasive and embarrassing. At worst, it will destroy your business.

About the Author: Sean Callagy is founder and president of Callagy Law, LLC. The law firm is based in Paramus and has additional offices in New York City and Phoenix, Arizona.

Related Articles: