Owning a business of any size in any industry is no simple feat, but some essential processes can ensure it runs as smoothly as possible.
Any business runs the risk of legal disputes, whether that’s with employees, customers or suppliers. Contracts are put in place and signed by both parties to help reduce the risk of disagreements and disputes down the line, but even then, it can be impossible to completely negate the risk.
However, when writing and signing contracts, there are a few steps that your business can take to help reduce the risk of a future legal battle. Remember – prevention is always better than cure.
Include all necessary details
The exact details required will depend on the type of contract, but all necessary information must be correct and clear before it is signed by either party. Avoid using vague or ambiguous language that could lead to different interpretations.
If your business is writing the contract, make sure every aspect of the deal is clearly stated within it. This could include:
- Names, dates, amounts and specific actions that are required, along with detailed descriptions of products, services or deliverables
- Rights, obligations and responsibilities for both parties
- How performance will be measured, setting benchmarks, deadlines and quality standards
- Payment terms, including the amount, due dates, method of payment and any penalties for late payments
- Clauses related to confidentiality and non-disclosure to protect sensitive information (if applicable)
- The circumstances under which the contract can be terminated, including provisions for breach of contract and the consequences of termination
Take extra care to study the terms if the contract has been written by the other party. Query any aspects that you may be unsure of or that you feel are missing, and ask the other party to update or rephrase any sections that you feel are unclear.
If an incorrect material or product has been listed, or perhaps an incorrect financial sum, there may be no way to legally prove the original intentions of the contract. It doesn’t matter what may have been said over the phone or perhaps in person between both parties, as the signed contract is final in proving the intent of the deal.
Alternative Dispute Resolution
If something goes wrong with a contract, the financial costs of lawyers and a court case can add up to thousands of pounds for whoever loses or settles. It’s important to preemptively protect against this risk by adding a clause to the contract.
By adding an arbitration or Alternative Dispute Resolution (ADR) clause, there is the opportunity to resolve any disputes without having to go to court. An ADR may state that a dispute should be referred to a trade body representative, an independent surveyor, or an online mediation service. Particularly complex issues may require legal intervention to resolve, but having an arbitration or ADR clause within the contract can reduce the risk of smaller disputes and disagreements becoming large financial losses.
Keep advisors on hand
It’s important to have relevant, knowledgeable professionals around to assist in any areas where you are not an expert. Depending on your business type and size, these may be in-house, such as accounts managers, salespeople and IT specialists. However, these can also be external, like solicitors, auditors and health and safety consultants.
Ensure any contracts your business writes or signs have been checked by your solicitor beforehand. It’s handy to keep a good connection with your solicitor so you can consult them for quick, professional advice should a contractual dispute arise.
A contract is useless without the signatures of both parties. The signatory should be someone with appropriate authority, which will depend on the nature of the contract. For important business deals this could be the director, a secretary, or an employee in an authoritative position, but for smaller contracts like a purchase order, employees with lower rankings may be suitable to sign.
Signatures should be placed after any annexation or schedules, as well as at the end of the last page of the main body of the document. They can be either physical or electronic, while the date of the signature should also be inserted.
The markets in which businesses operate are constantly changing, so contracts should be regularly reviewed and updated if necessary. Set scheduled dates for reviewing contracts to ensure that none get forgotten or left too long, but revisit any contracts beforehand if required.
It may be that the National Living Wage has risen, so certain contracts will need to be adjusted. If Data Protection rules have been changed, your contracts will likely need to be updated accordingly. Safeguard your business from trouble by keeping all contracts up to date.
Consistent staff training
Your staff should be confident in the terms of your contracts, as well as any procedures around their use. A business is legally responsible for what employees do in the normal course of work (known as vicarious liability), so all staff must be clear on the rules surrounding each contract. Make sure that this training is refreshed from time to time, especially after a contract has been amended or updated.
Entering a legal battle over a contractual dispute can hinder a company financially, as well as take up a lot of time. Unfortunately in business, there is no perfect contract that can fend off potential problems, so you must be prepared for the few customers and clients that may be looking for trouble – or have simply misinterpreted the facts or requirements of a particular deal.
Always consult your solicitor when putting important commercial contracts in place.
John Roberts is a Partner and Director at Austin Lafferty Solicitors. John has been with the firm for almost 20 years, with experience in all areas of business law.