Litigation Proofing Your Business

Family Trusts and Corporations
October 24, 2007
Mutual Wills
June 25, 2008
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Litigation Proofing Your Business

Going to court can be expensive.  Presently in Alberta, claims under $25,000 can be addressed through Small Claims (Provincial) Court, while matters above $25,000 go through the Court of Queen’s Bench.  It is not uncommon in Medicine Hat for a business to abandon the amount of their claim over the $25,000 threshold and proceed in Small Claims.  While our lawmakers plan to increase the threshold from $25,000 to $50,000, the amount of legal fees will continue to be a factor in deciding how to pursue or defend a claim.   A good business strategy is to address how a business will reduce the risk of being sued or having to sue..

1)    Put it in writing

Try to remember all the discussions you had yesterday.  Now try to remember all the discussions that you had 2 weeks ago.  In business, many disputes arise because one party has a different recollection of the events or discussions than the other party.  Gone are the days of the handshake deal.  Putting agreements in writing helps to confirm the details, reduce the possibility of a misunderstanding, and is the main evidence a court will look at in resolving a dispute. If the basic terms of your contracts remain the same from customer to customer, your business may benefit from a standard form of contract which will only need minor changes depending on your relationship with a particular customer.

In some cases it can be impractical to have a written contract.  In those cases, you should write a confirming letter after a discussion or meeting.  The letter should say: “I confirm we talked on this date, I agreed to do X, and Y for you and you agreed to pay me Z”.   If the other party disagrees, they could respond to you for clarification.  If they do not, your letter may be useful evidence to show the intention of both parties.

Making notes of your discussions with someone can also be helpful.  Lawyers make notes about conversations with their clients and other lawyers for good reason.  As memories fade over time, notes can assist people to recall what was discussed.  If you  take notes, and the other party does not, this may be useful evidence of the terms of an agreement.

2) Educate/monitor your employees

Employers are liable if their employees injure someone else or damage another’s property, while on the job.  In the law, this is called vicarious liability.  While the employee may be completely at fault, your company is the more attractive target to sue because it likely has more assets, money and insurance.  Proper training and evaluation of employees are important tools in reducing your business’ risk to employee negligence.

Documenting employee performance, especially if there are problems is also important.  If an employer dismisses an employee without grounds, the employer is required to give reasonable notice to the employee.  Reasonable notice is the length of time (or money in place of time) given to the employee to find similar type employment.  If the employer has a documented history of problems with the employee, which have been brought to the employees’ attention (in a letter), it may allow an employer to dismiss an employee for cause.  In such a case, reasonable notice or payment in lieu may not be required, which is both faster and less expensive.  In these situations it is valuable to have a legal opinion on whether the acts or omissions of the employee constitute dismissal without notice.

3) Use other methods to resolve disputes

When you make a contract with another party, it should address how problems between the parties will be handled in the future.  Businesses may consider incorporating mediation or arbitration clauses in their contracts to address the resolution of problems..

In mediation, the parties agree to use an independent third party to help resolve the matter.  The mediator will not make the decisions for the parties, rather the mediator is present to help the parties work out the solutions themselves.  In some cases just getting the parties in front of a neutral person, who can help them work out their concerns, may help to put their business relationship back on track.

If the parties cannot reach a solution an arbitrator makes a decision that binds them.  An agreement can provide for an arbitrator that has specialized knowledge in the business area related to the contract (ie: construction).  In many cases mediation and arbitration may be less expensive and quicker than the court process.

Legal services are typically required by businesses at different times.  Taking a proactive approach to examining your business and addressing areas which have exposure to litigation is often the best utilization of your legal fees.

Les Scholly
Les Scholly helps you navigate the turning points of life. He is a partner with Pritchard & Co. Law Firm, LLP and member of the Society of Trust and Estate Practitioners (STEP). Contact Les at 403-527-4411 or at