Eventually, you’ll run into some kind of dispute while running your business, and that dispute can develop into a lawsuit if you don’t settle it promptly. Some of the most common causes of commercial litigation include the six items discussed below.
1. Breach of Contract
Over the course of running your business, you’ll make agreements with multiple parties, including vendors, licensees, employees, and other business partners. Occasionally, one party may breach the agreement. In other instances, there may be accusations of a breach where none truly occurred, or it might be unclear.
In all of these situations, disputes arise over whether the agreement was broken and what should be done about it. If those disputes cannot be resolved, courtroom litigation is one of the possible results.
2. Intellectual Property Infringement
Intellectual property, including trademarks, trade secrets, patents, and copyrighted materials, should all be carefully guarded. Certain types of IP are often licensed out to other parties for use in manufacturing or marketing, and those licensing agreements are carefully controlled with detailed contracts. In other cases, as with trade secrets, those who have access to the information are bound by confidentiality agreements.
If IP is misappropriated or mishandled in any way, it can lead to a dispute and an eventual lawsuit if it isn’t resolved. Carefully constructed contracts and policies are integral to preventing these disputes, as is prompt action whenever a breach occurs.
3. Shareholder Disputes
LLC members, shareholders, and company partners may disagree on matters of strategy or policy, resulting in a dispute. Disputes may also arise from misusing company funds, failing to uphold fiduciary duties, and other types of mismanagement. In all these cases, the dispute can often be prevented with carefully drafted bylaws and agreements. That way, shareholders, members, and partners know exactly what is expected of them, and any disputes that do occur can be resolved quickly.
4. Employment Issues
Every new hire should sign an agreement outlining their duties as an employee of your company. However, they may not always keep to those agreements. Worse, your own management team may engage in—or be accused of engaging in—unfair or discriminatory practices. These can both lead to employment disputes, and those disputes can easily develop into litigation.
Carefully crafted agreements coupled with solid policies and procedures can help mitigate the impact of employment disputes while also preventing most of them from occurring in the first place.
5. Professional Negligence
When you hire a professional to advise you on specialized matters relating to your organization, you should be able to expect sound advice. If they don’t live up to the standards of their specific industry, it may constitute negligence on their part. The damages you suffer can be grounds for a lawsuit, but only if they result from actual negligent behavior. Unforeseeable mistakes typically don’t qualify for legal action.
6. Poor Dispute Resolution Practices
The final cause of commercial litigation on this list is one that can stem from any of the above scenarios. That cause is poor dispute resolution practices.
Some disputes may be unavoidable, but they don’t always have to lead to a lawsuit. Alternate dispute resolution (ADR) practices such as mediation or arbitration can be an effective way to defuse a situation before it’s taken to court. Contacting a competent mediator or arbitrator can help expedite the process, making a lawsuit less likely and saving on funds in the long run.