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Five Ways Thinking Like a Lawyer Can Help Your Business
Want to do well in business? Learn to think like a lawyer. Identify, as they do, the potential legal issues you’ll face in the business world. You can never be too careful, says Liz Brown, assistant professor of Business Law at Bentley University.
“Lawyers are professional worriers,” she says. “That’s what we do. From the moment you start a business or go into one, we ask: What could possibly go wrong? What could happen?”
It may seem a bit neurotic, but legal hyper-vigilance is something every business needs.
“When my business students ask why we’re studying law, I tell them you wouldn’t play a sport without knowing the rules,” adds Brown. “Why would you practice business without knowing the law?”
Here are five pivotal rules you need to keep in mind:
1. Incorporate or else
Starting a business? File an application to make your business a corporation, and get it on record fast. You want a legal entity that exists separate and apart from you. This move could save you from ruin if something goes awry — and, you never know, it might.
“Even the smallest business can be hit with major damages,” says Brown, who was formerly a partner in an international law firm specializing in intellectual property. “Say you own an ice cream shop. A customer slips and falls. Who is paying the medical bills? If you did things right, the corporation is paying.” Without protection, costly surprises can take you down.
Another scenario: You have a small web design business. When you’re fixing a computer, you accidentally wipe the memory. The loss of valuable information is worth hundreds of thousands. Are you incorporated?
If not, say goodbye to your condo. Unless you can privately cover the costs, personal bankruptcy is imminent.
2. Exercise fairness at every turn
Don’t discriminate. A seemingly obvious rule, yes, but there are many ways you can get this wrong. You likely know that it’s illegal to discriminate against a job applicant because of his or her color, religion, sex, national origin, age (40 or older), disability, or genetic information. And the same holds true for choices around pay and benefits, job assignments and promotions, and discipline and firing.
But will you always recognize when discrimination is happening?
Say you publish a job advertisement that seeks “recent college graduates.” Bad news. It may discourage people over 40 from applying and that may violate the law. Or men in your business are practicing word-of-mouth hiring that’s led to an all-male staff. Not good.
Too often people fail to catch themselves, says Brown.
Hiring people based on a manager’s personal comfort levels, or even a sense of what customers want, can lead to big legal trouble. Just this spring, the Supreme Court ruled that Abercrombie and Fitch broke the law by refusing to hire a young woman because of her headscarf. The company had claimed that the headscarf didn’t fit in with their “looks policy,” but the highest court in the country ruled that they had violated the Civil Rights Act by doing so.
Even if discrimination is not conscious, it’s actionable.
3. Take safety to heart
Think hard about consumer liability. What happens if you make something that hurts someone else? Consider the potential dangers of every single product.
“You have to prevent negligence,” says Brown. “Ask yourself: Were you as careful as you should have been? That’s what a judge and jury will ask if you get sued.”
Consider the McDonald’s drive-through lawsuit, which, says Brown, is a well-known case that’s been poorly reported and understood by the public. In 1992, Stella Liebeck, 79, bought a cup of takeout coffee and spilled it on her lap. A lawsuit ensued and, ultimately, a jury awarded her nearly $3 million in punitive damages for the burns she suffered.
People without all the facts have tended to personally dismiss the lawsuit, says Brown. Isn’t coffee supposed to be hot?
In fact, the coffee was not just hot. McDonald’s corporate policy was to serve it at a temperature that could cause serious burns in seconds, says Brown. Liebeck, a passenger in a stopped car, had the cup between her knees while taking off the lid to add cream and sugar. She tipped it. She got third-degree burns that required skin grafts on her inner thighs.
Here’s the clincher: McDonald’s had received more than 700 previous reports of injury from its coffee, including third-degree burns. It had even paid settlements. It was McDonald’s unwillingness to correct a dangerous policy that led the jury to award Liebeck such a high amount in punitive damages — an award that was later slashed on appeal.
Safety must always be a priority, shares Brown. Knowing how careful you have to be is critical if you work for a business that makes anything — food, cars, software, you name it.
4. Own your ideas
If you have a cool new invention, patent it. Registering an original creative product gives you the exclusive right to decide who uses it. Although the process can take a long time, it is absolutely essential for a new business to get those rights, as anyone who watches “Shark Tank” can tell you. Protecting your intellectual property is a smart move for artists, authors, and many others.
Trademarks are a big deal too, says Brown. These symbols, which you own or license, identify the commercial source or origin of products or services. Use them to distinguish products that belong to your business. As comedian John Oliver says, trademarks, typically a logo, symbol, design, image, word, or name, amount to “mandated dibs.”
And make sure you never infringe on a trademark you don’t own. This can be an expensive mistake, says Brown. “You may think you have the right to sell a T-shirt with that design, but do you? Never sell a knock-off.”
5. Stop before you sign
Don’t sign contracts on the fly, cautions Brown. Lawyers see far too many business people make this mistake. Many of us skip over the fine print all the time. To use Google, for instance, we scroll down and click on “I agree to the terms and conditions.” We’ve signed away unknown rights.
But business people can’t afford to do this. Take contract law seriously. You must understand what binds you when you join a company. If you decide to start a business, for instance, think before you form a partnership with someone else. Without a guiding contract, you are at the financial and legal mercy of your partner’s decisions. Your partner can take off with all your shared assets and the law may not protect you. A partnership agreement that specifies which of you has the rights to do certain things in the name of the business gives you better legal protection.
Lawyers are expensive. The best way to avoid needing one is to think like one. Brown says she likes seeing the lights go on when her students say, “Oh, that’s why you wouldn’t do this.”
Understanding legal consequences is non-negotiable. “I think you should have to get a passing grade in business law to work as a manager in any company,” says Brown. “Every single business person should know the rules.”
Meg Murphy is a freelance writer.
President Larson, along with guest experts, joined Bloomberg’s Carol Massar and Cory Johnson, to talk about how college and universities are preparing graduates to navigate diverse environments.