Of all disputes that end up in court, only three percent ever go to trial. Most of the rest settle. Settlement discussions, whether brokered by a mediator or obtained through direct negotiation, virtually always involve an exchange of information, not just demands and offers. Simply put, settlement involves education. Over twenty odd years of practice, I have come to conclude that most legal disputes stem from miscommunication. The economic and personal costs of conflict can be minimized in many, if not most cases through better communication. This article will explain some of the ways how.
PUT IT IN WRITING
With limited exceptions, verbal or “handshake” agreements are legally enforceable. (For some of the exceptions in Minnesota, see the Uniform Commercial Code Statute of Frauds and Chapter 513.) This is rarely a good idea, even for seemingly simple transactions. Memories fade or are subject to self-serving, selective recollection. To avoid good (or bad) faith misunderstandings, one of my mantras is “put it in writing.” In a perfect world, every verbally negotiated contract is reduced to a written agreement in plain, understandable prose and is signed by both parties. But even an email or less formal writings will often suffice. One way to do this is to send a confirming email, to the effect, “Please let this email confirm the terms of our agreement with respect to the sale of ….,” followed by a recitation of at least the essential terms of the agreement: parties, subject matter and consideration, and the statement, “if you disagree with any of the above, please let me know by responsive email immediately.”
Courts may fill in non-essential terms, but an agreement lacking an essential term is not legally binding. Which is another way of saying that not all agreements are legally enforceable. (Other unenforceable agreements include ones that violate public policy, involve a minor or other person lacking legal capacity, or violate a state or federal statute.) Naturally, asking a court to fill in non-essential terms that were omitted from an agreement is an avoidable cost. For this reason, it may make sense to speak with a lawyer up front. For strategic reasons, the lawyer may choose to remain in the background and “ghost write” or guide you in the negotiating and drafting of the agreement. This is a theme you will see repeated in this article.
PAY ME NOW
Hiring a lawyer is often a good way to avoid expensive disputes. This is not limited to just business transactions. A paid consultation up front can save you money in the long haul because a competent lawyer can guide you concerning what to say or, as may be the case, what not to say to a potential adversary or business partner. My personal approach, after learning everything I need to know about a transaction or issue, is to think of every possible thing that can go wrong and work backwards to avoid it, either in drafting an agreement or recommending a course of action.
Frequently, my involvement is in the background. In our overly litigious society, people are too quick to “lawyer up.” The quickest way to turn a partner into an adversary is to approach them through legal counsel. This requires the other person to hire his or her own lawyer. Escalation invariably begets expense. If I conceal my involvement by guiding a party in negotiations, or ghost write letters in which I deliberately avoid the use of legal jargon (which telegraphs the hand of a lawyer), the other party may neglect to hire a lawyer and my client will have a strategic advantage. At other times, particularly where my client has a far stronger legal position in a dispute, I want the other side to hire a competent lawyer and make my presence known up front. A rational party or potential litigant, once educated as to his case’s weakness by his/her advocate, will usually not engage in reckless litigation. Every rule has exceptions, and every situation is different. But a large part of what I do outside of court is to facilitate communication.
To repeat the old saw, “you can pay me now or you can pay me later.” Legal do-it-yourselfers who rely on the internet as their lawyer invite trouble. Form documents available online are often ill suited for the transaction in question, or are just plain bad. Informational articles may (1) not reflect the law of your state or jurisdiction, which can vary widely; (2) be out of date (the law is constantly changing); or (3) be just plain wrong. This applies in every area of the law: defamation, wills/estate plans, employment and others.
(As an aside, I am not fond of the term “lawyer up,” because I prefer to think of myself as a professional and not a tool or weapon.)
DO THE RIGHT THING
Business ethics is not an oxymoron. Honesty, straight dealing and simple human kindness will go a long way towards preventing legal disputes. Here are a few fairly random examples.
- In negotiations over the ownership of a new business, encourage each party to obtain his/her own legal counsel, and state affirmatively in the actual contract or settlement agreement either that “[PARTY] was given the opportunity to obtain legal counsel” or that “both parties were represented by legal counsel,” indicating the names of the parties’ lawyers right in the document. This applies even where the individuals are members of the same family.
- When terminating an employee, do it outside the presence of others. Humiliating a severed employee by marching him/her out of the workplace in front of others may cause the employee to contact a lawyer, who will root around to find some form of legal claim. Although not required under law for an at-will employee, you may also offer some form of severance pay to help them on their way.
- Use non-competes judiciously, narrowly and only where necessary to protect your business. Not only do ill-advised noncompetes engender bad will, they harm your ability to attract and retain talent in a tight labor market. For businesses financially strong enough to do so, consider including in the noncompete continuation of wages for a terminated or laid off employee for part or all of the period of restricted activity. Typically such terms exclude employees who quit or are terminated for misconduct.
Ironically, silence rather than communication may be warranted in the case of separations from employment. Employers are routinely sued based on statements made to employees in exit interviews. Poor word choice can support an inference of age/disability/race discrimination, retaliation for whisteblowing or some other form of wrongful termination. More communication is not always better; smart communication is the sine qua non. The same applies for employees who think they may have a legal claim. Threatening suit without the guidance of legal counsel can seriously undermine settlement leverage later on, lead to damaging admissions in subsequent litigation, or give away the party’s “game plan.” As a cautionary note, however, the unreasonable failure by an employee to report discrimination or harassment, so as to permit the employer to take corrective actions, may preclude the employee from recovering damages in a subsequent lawsuit. Faragher v. City of Boca Raton, 524 U.S. 775 (1998), Burlington Industries, Inc. v. Ellerth, 524 U.S. 742 (1998).
Sometimes disputes must be resolved through an adversarial process. But many disputes are amenable to early mediation, meaning right after or even before a lawsuit is filed. In the typical mediation, the parties (with their lawyers) are in separate rooms, and a neutral mediator, who is often a retired judge, conducts shuttle diplomacy, going back and forth conveying demands and offers. In the process, the mediator makes suggestions and provides an unbiased opinion as to the merits of the parties’ legal claims and defenses. Other less expensive options include arbitration or small claims/conciliation court. The jurisdictional limit for small claims in Minnesota is now $15,000 (or $4,000 for claims involving consumer credit transactions), so “small” is now actually pretty big.
REMEMBER YOUR “C’s”
So remember your C’s: communication can curtail conflict. But not all communication is good communication. Our social media permeated society encourages a confessional approach to communication: saying too much. A mentor long ago told me we were given two ears and one mouth for a purpose. So we should add a fifth C to the list to precede the first, a word synonymous with intelligent. Can you help me? “Cognizant,” “Crafty” and “Calculated” don’t quite work. ■