Legal Protection Tips for Your Home-Based Business
If you run your small business from home, does that mean you're protected against lawsuits and legal claims from clients and customers? Far from it. In today's litigious society, home-based businesses face just as much risk as any other type of business-and may have even more to lose.
"[Home-based] business owners face the same liabilities as other businesses," said Marcus Rayner, executive director of the New Jersey Lawsuit Reform Alliance. "[And] lawsuits can shut down a small, home-based business overnight."
To protect your business, follow these three important rules, and learn from these true stories.
1. Have contracts in place. Ken works from his New York home providing job placement for freelancers and independent contractors. One of the people Ken placed in a job filed a suit against him to claim unemployment benefits.
"What saved Ken was his contract, which clearly explained that these were not [his] full-time employees," said his attorney, Tatia Barnes, whose practice specializes in preventive legal counseling. Thanks to the contract Barnes helped write, she was able to successfully argue that the worker in question was an independent contractor.
Barnes warned home-based business owners not to cut corners by using generic, boilerplate contracts or to assume that because they are a one-person operation, a simple "handshake agreement" will suffice: "I can't stress enough the importance of taking the time to have a contract tailored to meet your specific needs."
2. If you are sued, don't settle without a careful review. Mark P., who runs a Florida-based shipping business from his home, was sued for $65,000 by a large shipping company that claimed he had failed to pay costs associated with some of the shipments he was managing.
Daniel F. Mantzaris, Mark's attorney and a partner in the law firm deBeaubien, Knight, Simmons, Mantzaris & Neal, LLP, reviewed all of the documentation to accurately assess what Mark owed. "We got the $65,000 shipping bill down to about $10,000," Mantzaris said, adding that business owners must review everything carefully before agreeing to any settlement.
3. Never underestimate the need for warnings. When a commercial real estate broker asked Jolene, a real estate agent, to show a commercial property, he explained the property was in the process of being renovated. Jolene passed the warning along to the prospective renter, and specifically told her to be careful on the stairs. Despite the warnings, the woman fell and sued Jolene.
"In today's litigious society, you always have to err on the side of caution. Any activity you're involved in could be the subject of a lawsuit," said Bob Dorigo Jones, senior fellow at the Foundation for Fair Civil Justice. He says a "caution" sign prominently placed on the outside of the property might have served to warn visitors that the site was potentially dangerous. Jolene could also have put a warning in writing and had the woman sign it.
How Can You Protect Your Business?
How can home-based business owners make sure they're protected? If hiring an attorney is cost-prohibitive, there are other solutions. Many small businesses use group legal service providers such as Pre-Paid Legal Services Inc., which provides legal services to individuals and business owners for a monthly fee.
Business insurance is also essential for home-based business owners. Visit the National Association of Insurance Commissioners' website to learn more about home-based business insurance topics ranging from property and liability coverage to business interruption insurance.
