23 Sep Most Common Causes of Business Disputes
Unfortunately, disputes between business partners and associates happen all the time. Our business dispute attorneys have seen it all — from small disagreements between friends turned business partners to major disagreements between large shareholders. No matter the size of the business, it almost always happens.
Protect yourself and your business by learning about the most common business disputes that develop with businesses not just here in Portland, but across the country.
Breach of contract
The business world runs on contracts. They are what hold businesses and professional relationships together. But what happens when a party doesn’t live up to their end of the deal?
This is a breach of contract and the reason for the majority of business disputes.
Below, you’ll find some common reasons for breach of contract. Before we get to that though, we’ve listed some ways to protect yourself from the possibility of a breach of contract disputes:
- Get every agreement in writing. When the goings are good, a handshake may feel sufficient for business deals, but an oral contract isn’t worth the paper it’s written on.
- Draft dispute resolution clauses. These will map out what happens in the event of a dispute.
- Avoid miscommunication. Disputes often arise because people don’t know what they should be doing. By making sure everyone is on the same page, major issues and many disputes can be nipped in the bud.
Common types of breach of contract:
- Lack of payment: Many contracts involve a set schedule for payments of goods or services. Even if nothing has been delivered, not making payments can destroy your partner’s budget.
- Missed deadlines: If you’re producing goods or services and you don’t deliver what you said you would by the date you said you would, you’re liable to start a dispute over delivery time. Even a delay of a couple days could cause a lawsuit.
- Unperformed obligations: Whether it’s delivering the wrong material, performing the wrong service, or just not doing what you said you would, unperformed obligations could lead to a breach of contract dispute.
Disagreements with shareholders, fellow LLC members and key stakeholders can take down a company. These disagreements can be over…
- Long-term company strategy
- Misuse of company funds or distributions
- Breach of fiduciary duties
- Conflict of interest
- Management and hiring decisions
- Failure to capitalize the company
- Financing issues and debts
When you begin a venture, you and your partner may have the same vision, but this can change as your organization grows and you all grow independently as people.
These issues commonly happen in small and medium-sized businesses as they grow, but they can also happen with much larger businesses. It also generally involves larger shareholders, though any shareholder can start a lawsuit and win given the right circumstances.
The best way to avoid shareholder disputes is with bylaws and shareholder agreements, and the best way to avoid LLC disputes is with a clear operating agreement, which plainly lay out what is expected of the company to shareholders and vice-versa.
Though not all advice you get can be expected to be perfect, when you hire someone for professional advice and they do not act in good faith or don’t live up to industry standards, they may have been negligent.
This commonly happens with…
- Management consultants
- Any licensed 3rd party
When do you have a case against these contractors? Generally when their actions have breached a duty of care and you have suffered material losses.
When operating a business, you need to feel confident your business can operate without your secrets getting out.
Many businesses for this very reason require employees and contractors to sign confidentiality agreements before working with them. This plainly explains the terms of the agreement and what you are able to talk about and what you’re not. This is done in part to protect the business, and in part for the business to recoup costs associated with any loss of business due to a breach of confidentiality.
Swift legal action is often taken against the offending parties to stop this flow of confidential information before it’s too late.
Theft of trade secrets
One of the biggest results of a breach in confidentiality agreements is when trade secrets get out and are eventually stolen by competing organizations.
This could be anything related to…
- How a business operates their manufacturing line
- How they find good team members
- Sales methods
- Advertising strategies
- Whatever you feel gives your business a competitive advantage
Similar to confidentiality, when you suspect a business of stealing trade secrets, swift action must be taken to stop the integration of the stolen trade secrets into the new organization.
Particularly in today’s technology-focused business landscape, nothing is more important than what IP, or intellectual property, a business owns, like…
When you own one of these on a product, process, or piece of technology or material, it’s yours to use alone until the protection has expired. If another company or organization is using it for profit, you have the right to seek material damages.
On the other side, it’s important to realize that there are IP firms out there that will take legal action against businesses for using their IP with dubious legal backing. When this happens, it’s crucial you understand the charges being levied against you and fight your case. Don’t just assume that because you’re being sued that you are immediately in the wrong.
Labor and employment issues
Issues with employees inevitably pop up when running an organization. Even though you may have your employees sign an employment agreements and/or employee handbook does not guarantee they’ll be perfect employees and play by your rules.
- Breach non-compete and confidentiality agreements
- Commit harassment
- Fail to perform their professional obligations
Having a rock solid employment agreement that they sign is helpful so that if they are bad employees you can fire them with just cause and avoid employment litigation.
Employees can also accuse you of wrongful termination if they’ve been let go with rightful cause, so make sure to have a good paper trail and attorney on your side to keep your business protected.
Have you found yourself in a business dispute?
The business dispute attorneys at JJH Law have extensive experience protecting businesses from existing disputes and crafting contracts that protect them in the future.
If you own a business in Oregon or Washington and want to help protect yourself, contact us today.