What Small Business Contracts Are Required and Who Reviews?
5 contract negotiation considerations
Contract negotiation is the process of give and take the parties go through to reach an agreement:
- Negotiation Comes Down to Risks and Revenues:
In a typical contract negotiation, each party compromises on some issues in order to get what it really wants. Although there are always lots of details to work out, most contract negotiations boil down to two essential factors: risks and revenues.
- The Business Side vs. the Legal Side of Negotiations:
Often, contract negotiations have two distinct stages: negotiation of the basic business terms followed by negotiation of the legal terms.
After having discussed the basic aspects of a contract, both parties will need to be in agreement with several objectionable provisions that may appear on the document, such as an attorney fee provision or a provision that requires one of the parties to obtain insurance.
Both involved parties need to reach an agreement before the contract gets signed.
- When Is There an Enforceable Contract?
Under contract law, there is no contract until all of the material elements of the deal have been negotiated and agreed upon.
So, a legal dispute over whether and when a contract exists will boil down to whether any of the outstanding legal issues are material elements of the deal.
If the parties have agreed to the business terms of the deal and want to proceed before hammering out the legal details, they can use an escrow account or condition the release of funds on the execution of a written agreement. This avoids the problem of having to chase after money you laid out if the deal never materializes.
If the negotiations fall apart, everyone gets back what they put in and moves on.
- Lawyers and Negotiation:
If you own or run a business, you may have experienced the following situation. Your company believes it has reached an agreement with another company on the business terms of a deal.
Both sides bring in their lawyers to hammer out the details — and as soon as the lawyers get involved, everything goes down the tubes. That could be because lawyers have three potentially conflicting factors at work when they’re negotiating.
They want to:
- protect their clients by minimizing risks and maximizing revenue
- act professionally so they won’t be vulnerable to malpractice claims or disappoint clients (who can always find another lawyer), and
- earn money (this last factor creates the perverse incentive that the more time it takes to hammer out a deal, the more money the attorney makes. In other words, it is profitable if either or both sides drag out the negotiation).
Compliance issues
There are dozens upon dozens of state and federal regulations that dictate how employers – large, small, and all sizes in between – treat their employees and even potential employees. However, many employers find it difficult to understand how the laws impact them or their businesses.
As a result, employers often, knowingly or unknowingly, violate the regulations.
Below are examples of some of the most common violations, along with a potential consequence:
- Employee Leave–
A mid-sized business owner who employs just over 50 workers refuses to give unpaid leave to an employee who requests time off to care for a
seriously ill parent. However, the employee has been with the company for five years and has worked more than the required 1,250 hours over the previous 12 months.
Consequence: The employee files a complaint with the Department of Labor (DOL), which leads to a DOL investigation and sanctions, as well as a very expensive employee lawsuit. (FMLA violation)
- Wage Payment–
A small business owner works her hourly, non-exempt employees nearly 50 hours each week, but only pays them for 40 hours. A competing business owner also works his employees 50 hours each week, and although he pays them for 50 hours, he only pays the regular straight time rate rather than incorporating any overtime pay.
Consequences: Several employees file “Wage & Hour” charges, which in turn lead to audits of ALL payroll records. Both employers are found to be non-compliant, one is required to repay two years of back pay, while the other is required to repay three years of back pay because it was determined that the violations were knowingly and willfully committed. (FLSA violation)
- Unemployment Compensation–
A small company terminates an employee for work-related misconduct.
However, the company never provided the employee with an employee handbook, so he never signed a policy and procedure acknowledgment. In addition, the company neglected to maintain a written file of the employee’s misconduct, so there is no documentation of the employee’s disciplinary history.
Consequence: Because the company cannot present documented evidence of the employee’s misconduct nor can it demonstrate that the employee should have known of the company policy, the company is charged with a costly unemployment claim.
- Discrimination–
An owner of a mid-sized construction company repeatedly overlooks a proven and capable female employee for promotion.
Consequence: The woman files an Equal Employment Opportunity (EEO) charge, and the subsequent EEO investigation reveals that the employer has a history of only promoting men and has no legitimate business reason for not promoting her. The company is forced to pay the female employee a large settlement to avoid a potentially more costly lawsuit. (Title VII violation)
- Hiring–
During a job interview, an owner of a small business asks the applicant if he has children. The applicant is not hired, and he assumes it is because he responded that he has three small children.
Consequences: The applicant files an EEO charge and ultimately a suit against the business. The business owner is forced to pay extensive legal fees to defend against the suit.
And this list is just the tip of the proverbial iceberg. It is nearly impossible for a business owner to keep up with all the regulations governing employee issues, so how does he avoid making a costly mistake?
The most effective way to ensure your business is in compliance with all the human resource regulations is to hire knowledgeable Human Resource professionals. Whether you hire in-house or outsource human resources, having access to experts whose job it is to stay on top of HR issues and regulations is the best way to ensure your business is in compliance.
This series ongoing series handbook prepared by Marjorie Weber was prepared will also be part of the Miami Bayside Foundation to qualify small business owners for the Miami Bayside Foundation loan program.
Handbook series Small Business Start Up Part 1: Small Business Start Ups Making It Legal; Part 2: Small Business Start Up Capital Access Primer and Key Steps ; Part 3 Definitive Steps to Create the Optimal Small Business Growth Team Part 4: Once You Have the Dream Team, It’s About Employee Retention, Part 5: Delegating Responsibilities Policies and Procedures – Letting Go Part 6: Breaking Down the Set Up of Small Business Financial Records Part 7: Three Best Bet Picks for Small Business Accounting Software Part 8: To Lease or To Buy? Issues Relating To Both In Today’s Market part 1 Part 9 Decided on a Business Lease? 20 Lease Provisions
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