Today's episode is part four of the Contract Series where I share what to do if a client is planning to sue you.
Client issues are more common than you think, and client issues do not mean you're not good at what you do. Sometimes we fuck up, sometimes we just have messy clients. There will always be client issues when it comes to owning a business.
Back on Episode 112, I spoke with DJ Kevin Dennis about his experience with the legal system with a lawsuit from a couple about Kevin's contract and COVID related cancellation refund. Similarly, last year on Judge Judy a client sued a wedding planner for a refund due to a COVID cancelation/postponement. The planner said the retainer was non-refundable and have already substantially performed under the contract.
I give you examples not to scare you but to show you that even for small businesses with contracts under $5,000 can get into legal disputes.
If it looks like you're heading down this road with a client, the first thing to do is consider what your contract says. Contracts are generally going to state what you can and can't be liable for, but you'll still need to defend it. With proper contract revisions, you can at times waive your liability, especially if it's something that is not your own fault.
Your contract can do a lot, but it can't do everything. You can also put in your contract what happens if there is a legal dispute. Where must the parties file suit? Are you going to have an arbitration provision? Are you going to have a mediation provision? A small claims court provision? There are a lot of options available and it can vary by state. My recommendation is to be strict with these provisions. The worst case scenario is that it doesn't help you. Venue provisions of where people can sue you are super helpful, especially if you do a lot of travelling.
If you have a client who is mad at you, ask yourself why they are angry. Are they mad at me or are they just angry in general and I am the outlet? This is common with wedding planners. If it seems like they might sue you, you always want to try and resolve the situation amicably if possible, stay away from legalese and if it looks like you won't move forward amicably, consider extending an olive branch such as a partial refund. It's always a negotiation and it's important to know what you're entitled to. Even if you're not sure, stick to your contract and then consider that your bargaining point. Never put your best offer out right from the start, you can often negotiate without giving them all of your money and never make any bold legal claims. Instead of saying "you're legally obligated to____" say, "Our contract is clear that ____"
Consider a refund a worst case scenario before a lawsuit. If you do give a refund, have the client sign a mutual cancellation and release agreement. This is a template that says why you're giving a refund, if you're cancelling the contract (most likely you are) and that both parties agree not to sue each other. Once you come to a resolution the first thing is to put it in writing. This can go in an addendum to the contract, an addendum is good for a hiccup in your services. Postponement agreements are typically for event-based contracts. The other option is a cancellation agreement where you need to specify what services have already been completed, what services won't be completed, that both parties agree to move on, and if there is any payment due or will be refunded.
If you are ever facing a client problem, seek assistance in my free Facebook group, Braden's Besties (be careful with specific private details especially if it's a B2B client, the world is small.)
Have a follow up questions or want to meet some fellow kickass biz owners who also are trying to get their shit legit? Come be a bestie and join us in the Facebook Group.
You'll learn: what the three mistakes are; how to fix them; and also how to work with me to get your legal & tax shit legit.