A Contract Can Save You from a Bad Actor
We keep a freshly stocked box of tissue on every conference table in our primary offices in Albuquerque. The reason for this, is when someone comes into our office, it’s usually because something bad is happening to their business. It can be many things, but we commonly see businesses dealing with a bad actor who has hurt their business in some way.
Everyone’s issues are so vastly different, but the one thing that seems to pull at our client’s emotions the most, is dealing with a difficult client. Most small businesses struggle to meet payroll, let alone deal with the overwhelming maze of legal requirements, taxes, and keeping clients and customers happy.
Most small businesses operate on a handshake or a verbal promise, and not much else.
It’s like driving a car without insurance. You may go a week, a month or even years, before something happens. But when something does happen, it’s devastating.
Operating a company, without a proper contract with your clients or customers is just as bad as driving a car without insurance.
The problem is, while most American citizens are proud of our capitalistic society, the politics of the situation is all bluster and no substance. Did you know that small business accounts for 99.7 percent of U.S. employer firms and in 2012, accounted for almost one-half of the GDP in the United States?
You’d think small business would be deserving of more respect in the United States, but no. Instead, the law presumes most small businesses have the financial backing and capability of a Walmart, and that most small businesses are inherently evil. Case in point: Most states have adopted what’s called the “Uniform Deceptive Trade Practices Act” (or UDTPA), and this law explicitly “prohibits sellers from intentionally misleading buyers.” It’s one of those things that sounds great in theory — it makes great optics for politics — but serves a great injustice to those honest-to-goodness small businesses who encounter that one bad apple.
This law does NOT protect small businesses from the criminal acts of bad actors. Most state laws permit double or triple damages, plus attorneys fees as against the business. In many instances, such as providing services, an outright theft by a client or customer has absolutely no legal repercussions whatsoever, but that same client can still sue you under a UDTPA claim (with damages and attorneys fees).
Therefore, if a small business finds itself in a dispute with a bad customer or client, and if that customer or client hires an attorney, you can bet a UDTPA violation will be claimed. If the small business is owed $8,000 for a job, it can turn the dispute into a nightmare, as the former client or customer claims higher damages, plus the double or triple penalty on those damages, plus attorneys fees.
How does a small business protect itself? By making sure every client and customer signs your contract BEFORE YOU DO ANY WORK, PROVIDE ANY SERVICE OR GIVE ANY PRODUCT. It’s very important to have, at a minimum, clauses addressing limited warranty, limited liability, attorneys fees, scope of work / what’s included / excluded, cancellation policy, refund / return policy, and please read our other blog article entitled, 7 Questions to Ask Yourself When Negotiating a Contract. Also read Boilerplate Matters in Contracts.
If you don’t have a standard contract that you require all clients or customers to sign, what you’re really doing is setting yourself up for that one bad actor. That one bad actor will spoil it for everyone, because that bad actor doesn’t care about you or your business — they are simply out for themselves, and without a good contract, you will drastically increase the odds of a disastrous situation down the road.