How to Avoid Legal Pitfalls as a SMALL BUSINESS OWNER IN ALBERTA
When you are running a small business in Alberta, hiring a lawyer for advice on operational issues can seem like an unnecessary expense. Given that legal costs are generally high, it can be unduly burdensome for a new business. However, it can save you much higher costs and expenses in the long run.
To avoid these legal pitfalls, it is important to be aware of the common legal issues that small businesses face and how to prevent or resolve them. Here are some of the biggest blunders that small businesses make that lead to legal trouble in the future and how to avoid them:
Executing DIY contracts
Contracts are essential for any business transaction, as they define the rights and obligations of the parties involved and provide a legal basis for enforcing them. However, many small business owners try to save money by drafting their own contracts or using templates from the Internet without consulting a lawyer. This can be a costly mistake, as DIY contracts may not be tailored to your specific situation and may contain errors, ambiguities, or clauses that are not enforceable or compliant with the law.
To avoid this pitfall, it is advisable to hire a lawyer to review or draft your contracts before you sign them. A lawyer can help you ensure that your contracts are clear, accurate, and protect your interests. A lawyer can also advise you on the applicable laws and regulations that affect your contracts, such as the Business Corporations Act or the Alberta Employment Standards Code.
Not running a trademark search
A trademark is a word, symbol, design, or combination of these that identifies your products or services and distinguishes them from those of others. A trademark can be a valuable asset for your business, as it can help you build your brand recognition and reputation. However, before you choose a trademark for your business, you need to make sure that it is not already registered or used by someone else. Otherwise, you may infringe on their trademark rights and face legal action.
To avoid this pitfall, it is advisable to run a trademark search before you register or use a trademark for your business. A trademark search can help you determine if your trademark is available and not confusingly similar to existing trademarks. It is advisable to consult a lawyer or a trademark agent to conduct a thorough and professional trademark search for you.
Misclassification of workers
Workers are classified into two main categories: employees and independent contractors. Employees are entitled to certain benefits and protections under the law, such as minimum wage, overtime pay, vacation pay, employment insurance, workers’ compensation, and human rights. Independent contractors are self-employed individuals who provide services to clients under specific terms and conditions. Independent contractors are not entitled to the same benefits and protections as employees and are responsible for their own taxes and expenses.
Many small business owners prefer to hire independent contractors rather than employees because they can save money on payroll taxes and benefits. However, some small business owners misclassify their workers as independent contractors when they actually perform the work of employees. This can attract significant liability under the Employment Standards Code. For example, if an independent contractor you just terminated claims to be an employee, you might face a claim of a substantial severance payment not accounted for.
To avoid this pitfall, it is advisable to properly classify your workers based on the nature and degree of control you have over them, the ownership of tools and equipment they use, the degree of financial risk they bear, and the opportunity for profit they have. You should also have written contracts with your workers that clearly define their status and terms of service.
Not having a shareholder agreement
A shareholder agreement is a contract among the shareholders of a corporation that sets out their rights and obligations with respect to their shares and the management of the corporation. A shareholder’s agreement can help prevent or resolve disputes among shareholders by providing rules and mechanisms for dealing with various issues, such as voting rights, dividends, share transfers, valuation, dispute resolution, deadlock situations, buy-sell provisions, exit strategies, etc.
Many small business owners do not have shareholders agreements because they think they are unnecessary. However, this can be a risky decision, as shareholders agreements can provide clarity and certainty for shareholders and protect their interests in case of conflicts or changes in circumstances. Without a shareholder’s agreement, shareholders may have to rely on the default provisions of the Business Corporations Act or the articles of the corporation, which may not suit their needs or expectations.
To avoid this pitfall, it is advisable to have a shareholders agreement drafted by a lawyer when you incorporate your business or when you bring in new shareholders. A lawyer can help you customize your shareholders agreement to reflect your specific goals and preferences and ensure that it is consistent with the law and the articles of the corporation.
Terminating employees for performance issues
Terminating an employee is one of the most difficult and sensitive decisions that a small business owner has to make. However, it is very difficult to terminate an employee for cause on the ground of poor performance. The employer has a duty to help the employee succeed by providing clear expectations, feedback, training, coaching, and reasonable opportunities for improvement. If you fire someone for failing to perform, it can be a good ground to allege wrongful dismissal and sue you for damages.
To avoid this pitfall, it is advisable to follow a fair and progressive discipline process before you terminate an employee for performance issues. You should document the employee’s performance problems, communicate them to the employee, give them a chance to improve, and warn them of the consequences of not meeting the standards. You should also consult a lawyer before you terminate an employee for cause to ensure that you have sufficient grounds and evidence to justify your decision.
If you are a small business owner and have any legal issues you require advice on, our lawyers at Osuji & Smith are here to help.
Author: Imtiaz Hafiz