Regardless of the size of your company, the legal aspects of your business are critically important. Unfortunately, many small businesses fail to heed this salient fact, leaving them dangerously vulnerable and subject to serious legal exposure.
Here are a few of the most common legal mistakes and advice on correcting the situation.
Taking a do-it-yourself approach to business law. Some small business owners, leery of the anticipated expense, attempt to resolve legal matters on their own. The problem with this approach is that business law—including employer-employee law, contractual law, copyrights, trademarks and patents—can get extremely complicated, far beyond what any non-legal professional can be expected to know.
“Many small business owners think investing in professional legal help isn’t worth it, but failing to obtain legal counsel for important matters can cost you big-time in the long run,” says The Network Journal. “(The) most cost-effective time to work with a lawyer is actually when your business is booming and you have no looming legal troubles.”
Lack of understanding about copyright laws. Many small business company websites include content reported from elsewhere on the web (articles, blog posts, images, etc.). But even giving credit to the author of reposted content, and including a back link to the original site isn’t necessarily sufficient to fulfill all of the requirements of copyright law. Penalties for copyright infringement include significant violation fees and the possibility of legal action.
Before you decide to use copyrighted materials either from the web or other sources, always get permission (in writing, if possible). This helps protect you against potential infringement claims in the future.
Confusion regarding creative assets. Did you know that the products or services you offer call for legal protection? Some small businesses neglect taking action because of the supposed expense. But if your product or service qualifies for copyrights, patents or trademarks, “it’s generally less expensive to obtain protection shortly after developing your IP (Intellectual Property) than having to protect it later.”
Not formalizing your business relationships. Many small businesses employ outside contractors and vendors as part of their daily operations. But failure to formalize these business relationships risks both the loss of your prized intellectual property and potential tax liabilities.
The solution? Require every contributor to your business to sign an independent contractor’s or employment agreement. This agreement should include, at a minimum, the individual’s personal identifying information, job responsibilities, pay schedule and a non-disclosure clause, stating unequivocally that information belonging to your small business will always be confidential and never shared with a third party.
Having inaccurate or inadequate human resources policies. Probably the greatest single area of potential liability for most small businesses is in the area of human resources. A common fallacy among small business owners is the notion that, due to their relatively low number of employees, it’s unnecessary and time-consuming to develop HR policies similar to those of larger companies.
Frequent errors in small business HR policies include:
- Misclassification of employees as either “exempt” or “non-exempt”
- Inappropriate questions asked during a job interview
- Inadvertently revealing private employee information
- Failure to document an employee’s past behavior (in the event of a formal disciplinary process)
- A lack of compliance with (1) the Fair Labor Standards Act, with respect to minimum wage, overtime pay, child labor and record-keeping requirements; (2) Title VII of the Civil Rights Act of 1964, barring discrimination in employment based on race, religion, sex, color and national origin; and (3) the Americans with Disability Act, prohibiting discrimination in hiring against disabled job candidates
Many of these potential issues can be avoided by publishing and distributing a comprehensive employee handbook to everyone in your business. This handbook should address these federal workplace regulations, as well as additional laws and regulations required by local and state laws. This may help insulate your business against potential legal actions.
Most importantly, look into hiring a business lawyer sooner rather than later—and particularly, if you’re in the early stages of your business. Says Ellen Rosen in The New York Times: “Despite the proliferation of both self-help books and Internet advice, when starting a business even the most sophisticated of businesspeople find … that they need an individual lawyer to guide them through the most basic of decisions as well as the most complicated ones, like financing and property issues.”
Author: Michael S. Rothman is a trial lawyer from the Law Office of Michael S Rothman. Rothman has handled business litigation cases in both Federal and State courts.