When you’re a small business owner, lawsuit threats can seem like the end of the world. Let’s face it, people in America love to sue each other.
But fear not! Most of them are just that: threats.
Often, clients will use the threat of a suit to bully you into doing what they want. Like we’ve told you before, it can be difficult to avoid conflict with tricky clients.
But every once in a while, they do follow through.
Here are a few tricks of the trade to make sure you’re ready for whatever they throw at you:
Scenario One: “I Could Sue You”
I hear this every now and again from an irate client. Sometimes it’s an actual mistake, but more often than not, it’s because of a missed deadline or a misunderstanding of expectations… and sometimes, that’s just the way it goes. Either way, the “L-word” can make your heart skip a beat.
Sit down, relax, and take a deep breath!
Most of the time, you can ignore the threat. The thing is, lawsuits are costly – in both time and money. When a client is suing for a relatively small amount of money, really, the only people who win are attorneys. Anyone threatening to sue you probably already knows that. So unless they persist, ignore the threat.
Scenario Two: “My Lawyer Will Be In Touch”
On the rare occasion your client does continue to threaten you, make sure they mean business. I usually go ahead and ask, “Are you really going to sue me over something this small?”
If the answer is yes, it’s time to cover your bases.
a) Start shutting down communication.
When tensions are high, people say a lot of things. The more you say, the worse it could be. It’s best just to close yourself off from the situation until things are more manageable. If need be – and if you’re a small enough company – consider shutting down operations for a while until it blows over.
b) Get everything in writing.
I can’t stress enough how important this is! I like to use a communication tool like Basecamp to keep track of conversations with both my team and my clients. Even if you just use email, make a folder for your client. Go back and make sure you’ve held up your end of the bargain, as stipulated in writing; which brings me to my next point…
c) Check your contracts.
Don’t do everything orally. A written contract is your best protection from this exact situation. Sometimes clients’ expectations are simply not possible.
So remember: Read your contracts thoroughly, and negotiate before you sign.
Pro-tip: I even like to put a few plain-English sign-offs like “I understand that sometimes things happen and deadlines can’t be met,” to make sure the client fully understands what he’s in for.
You can check out our Contracts 101 to make sure you’ve got it right.
Scenario Three: You’ve Been Served
It might seem scary at first, but even this hurdle can be jumped successfully. If your client is pushing to go to court, then it’s time to start this conversation…
What if it is my fault, and I want to make it right?
Let’s say you did make a mistake, and you want to make things right with the client. Let’s face it, sometimes things just happen. We’re all humans.
I recently had a friend come to me about this, and I told him it’s okay to come clean. Admit the mistake. Talk to your client about making amends. A lot of times, you can handle this without the lawyers. And if your client is a reasonable person, they’ll probably make a compromise with you to set things right.
Unfortunately, not every client is this reasonable.
What if I did nothing wrong, and the client still isn’t backing down?
We all know this client: the guy who wants a ten-week project done in two or the woman who doesn’t understand why she needs to pay more for a website with a better design.
So when you hit the client who just doesn’t get it, it’s time to lawyer up and cover your assets.
a) ALWAYS Pay Your Payroll Taxes on Time!
This is a big one. If you actually do get served, the first thing your client’s lawyer is going to do is to check your taxes. If you haven’t paid your payroll taxes on time, you could get nailed for a “breach of the corporate veil.”
It might not seem like this has anything to do with your contract with your client, but your client’s lawyer will use it to make you seem shady or like you’re not a good business owner. So follow the labor laws, folks. And get those payroll taxes in on time.
b) Incorporate, Incorporate, Incorporate
This is the cheapest insurance policy you’ll ever buy in your entire life. If your company is a corporation, then any lawsuit is going to be dealing with the company itself – rather than with you.
The corporation is a totally separate entity from its shareholders. This means you’re not legally liable for the actions of the corporation. So if the company does have a problem, you don’t have to go down with it. It may seem like a hassle to have to keep an extra set of records, but trust me – it’s worth it.
c) Sometimes the Best Defense is a Good Offense
When you’re dealing with unreasonable people, you might need to make sure they aren’t playing dirty.
Let’s say a client is taking you to court for a breach of contract over a missed deadline. First things first, check your contract. Again, this is why I like to put plain English in my contracts. That way, you can point to the phrase “I understand that sometimes deadlines cannot be met on time” when they try to sue.
If you don’t have that phrase – or something like it – your client may press you to go to court. Your second line of defense is to check how they’re handling it. If they’re hitting up review-websites with nasty comments that aren’t true, that’s a libel countersuit waiting to happen.
d) Try to Settle
Luckily for easy-going designers and developers like myself, lawsuits don’t happen that often. Threats are often just a bully tactic. But in those rare occasions that you do have someone who wants to go to court, you can usually get them settled before it goes that far.
The vast majority of small claims cases don’t ever see a courtroom. So take a deep breath, and talk to your lawyer about your options. If you did make a mistake, or if your contract wasn’t precise enough, there’s usually a way to settle the suit out of court.
Remember: The power of a lawsuit is not in the winning, it’s in making the other person defend themselves.
If someone throws the “L-word” into a conversation, your first line of defense is to ignore it. They’re probably just trying to bully you. But if they keep pushing, go ahead and have your ducks in a row. Know your contracts. Make sure you’ve covered your bases before getting your first client. Then be ready just in case the storm hits.
Have you ever experienced your clients throwing the “L-word” at you? How did you handle such situation? What are some of your thoughts on this?