With all of the layoffs, reorganizations, and buyouts going on these days, legal experts say companies need to take the right steps to avoid ending up in the courtroom.
The combination of poor economic conditions and disgruntled, laid-off workers makes the current business environment especially ripe for lawsuits, legal experts say. And with budget crunches on a grand scale across corporate America, few companies can afford to get hung up in expensive court actions.
But here's the reality: Litigation is, in many ways, recession-proof. People can find a reason to sue regardless of current economic conditions, said Clark Hill attorney Kaveh Kashef.
To protect your business from landing in court, Kashef has a few thoughts on litigation in this current economic climate, and how to protect your business from ending up in expensive legal action.
1) Given the current economic climate, are companies more at risk of being sued these days? And are you seeing a spike in litigation that appears to be connected to economic conditions?
The general consensus is that litigation is a "recession-proof" area of the law. Real estate development, mergers and acquisitions, corporate transactions and similar areas are usually busier when the economy is moving in a positive direction and there is money to be spent. Conversely, as is seen in Detroit, when the economy takes a turn for the worse, personal and corporate bankruptcy filings increase, and lawyers specializing in that field benefit from the poor economy.
However, general business litigation is considered "recession-proof" because businesses and individuals will continue to find reasons to commence and defend lawsuits. When times are good, businesses have the finances— or “war chests” if you will—to commence lawsuits to uphold strident positions in their day-to-day disputes. When times are bad, businesses stop making payments or otherwise meeting their contractual obligations, thereby providing the aggrieved parties with no option but to file suit.
2) Are there certain industries that are more prone to lawsuits during an economic downturn than others? How so and in what ways?
Any increase in lawsuits for certain industries is usually a function of regional economic factors. Of course, because the automotive industry is presently the driving force of the economy in Southeast Michigan, many businesses or industries are affected by the woes of the Big Three.
Obvious businesses such as employment litigation (people being fired and laid off), trucking, banking and commercial construction, and real estate are affected. But more secondary and tertiary-tied industries such as restaurants and entertainment, landlord/tenant, and residential construction are feeling the effects of the region's economic conditions.
3) Are there certain events like layoffs and reorganizations that tend to invite more legal action? What are employees most concerned about when it comes to litigation related to the recession? And what are some of the more common grievances that tend to arise as a result of this sort of economic climate?
Layoffs and reorganizations are, unfortunately, becoming a common occurrence in today's economy. Most companies consider a reduction of their workforce when considering cost-cutting measures.
With the increase in joblessness, basic issues such as unemployment benefits, continuing healthcare benefits, the negotiation of severance agreements, and unpaid vacation time are frequently disputed between an employer and employee. In addition, the possibility of wrongful, potentially discriminatory terminations (or the perception of discrimination) will naturally rise with the increase in layoffs and reorganizations—all fertile ground for litigation.
4) Regardless of industry, what are some common areas of vulnerability that companies need to watch out for in terms of legal liability?
As noted above, from an employment perspective, employers need to ensure that individuals do not use the economic downturn as a pretext for discriminatory terminations.
From a general business perspective, companies should look at their supply contracts, purchase orders, leases, and any other contracts and business documents so that they understand what options they may have should they not be able to meet their obligations or the needs of their customers. As a basic example, any one of these documents could contain: (1) early termination provisions that require a certain amount of notice, (2) provisions that relate to the occurrence of a bankruptcy, or (3) minimum purchase requirements.
5) Given the above, what are some specific steps that companies need to take to reduce their legal exposure at this time? What are some specific action steps (e.g. policies and/or best practices) that companies need to take to stay out of the courtroom during this already difficult time?
In addition to the obvious—which is to make their best effort to meet their contractual obligations—when times become difficult, companies should engage in an open dialogue with their suppliers, customers, vendors and others to discuss the current status of their businesses and think of "out-of-the-box" solutions to their problems.
The worst thing that a company can do is to ignore phone call after phone call from a vendor in hopes that the vendor will "forget" a debt. It is in everyone's mutual best interest to try to work out payment plans and other alternative arrangements, rather than cause another party to have no other option but to commence a lawsuit.
Finally, as listed above, knowing your contract and all of your obligations and rights is the best way to ensure against any surprises and to stay a step ahead of an economic downturn.
To learn more about Clark Hill, click here. To read more about Kaveh Kashef, click here.
Written by Jenny Cromie, certified human resources specialist (CHRS)
Clark Hill, PLC, paid for placement of this content. The firm’s views do not necessarily reflect those of The Daily Dash, WWJ Newsradio 950, or CBS Radio.
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