Before a new business has its first sale, businesses face potential legal disputes that can arise from leases, contracts, regulatory compliance, and interactions with employees and local authorities. Understanding these risks and how to prepare for them can save significant time, expense, and stress down the road. It’s important for a business to establish a legal plan to help avoid litigation and to be ready when problems arise.
As New Jersey attorneys who regularly advise businesses, Parker McCay guides clients not just in launching their operations, but in minimizing the risk of litigation and responding strategically if disputes arise. A litigation-focused attorney can review leases before signing, negotiate favorable terms, and help structure agreements to minimize disputes.
Many businesses start by leasing retail, office, or industrial space. The most common disputes involve breach of lease agreements; landlords may dispute tenant improvements, rent obligations, or subletting arrangements, while tenants may face claims for property damage or unpaid rent. Eviction disputes can occur early for both tenants and landlords. Early-stage businesses may struggle to pay rent, and landlords may initiate eviction proceedings. Knowing your rights and defenses under New Jersey law is critical.
A business can face other litigation risks before even opening its doors. Zoning and permitted use conflicts are common mistakes for the new business owner. A business owner should not assume that, just because a space is advertised for commercial use, that your intended business activity would not violate local zoning ordinances. (For example, does the town define a fitness center to be in commercial or medical zoning? Is a retail business allowed to be open 24/7, or are there restricted hours? Is the business highly regulated, such as a marijuana dispensary or brewery, and likely facing additional restrictions at the local level?) Businesses have had to delay Grand Openings or restrict services, such as limiting operating hours, as owners merely assumed their business was appropriate.
New Jersey businesses must comply with state and municipal licensing requirements. Common litigation-related issues include fines and penalties, administrative appeals, and in the worst case scenarios, a denial or revocation of licenses. A failure to obtain a mercantile license, health permit, or other licenses (such as from the Division of Consumer Affairs) can lead to administrative action or lawsuits if the business continues operating. Operating without proper permits or violating regulations can result in enforcement actions, which may escalate to contested hearings in state or municipal court. Businesses sometimes face disputes with regulatory agencies, requiring legal representation in hearings or appeals.
Being proactive with licensing and compliance can prevent disputes, but knowing how to respond when a municipality challenges your operations is equally important.
Once your business opens, contracts with vendors, suppliers, and clients become a common source of litigation. Drafting clear contracts with dispute resolution clauses is essential for protecting your business and limiting exposure to lawsuits. Failure to deliver or pay for goods can lead to breach-of-contract claims. For small businesses, even a single unpaid invoice can escalate into litigation. Additionally, customer disputes for defective services, unmet expectations, or refund demands can escalate to litigation.
Hiring employees introduces additional litigation risks. This can include wage and hour claims, discrimination or harassment claims, and wrongful termination or retaliation claims. Having employment policies reviewed and ensuring proper training can help prevent lawsuits before they start.
Businesses face exposure to claims from injuries or damages. A failure to maintain safe premises can cause accidents due to wet floors or raised carpeting. Liability can extend to contractors or employees if negligence is involved. Insurance coverage, waivers, and careful operational protocols are critical for limiting litigation exposure. Ensure that your business has proper insurance in compliance with franchise agreements and lease terms. Additionally, some businesses are required by the state to have a surety bond.
While most businesses hope to avoid disputes, litigation risk is inherent in every venture. Taking a proactive approach includes:
- Consulting an attorney before signing leases or contracts.
- Ensuring licensing and municipal compliance before opening.
- Drafting employment policies and contracts carefully.
- Securing appropriate insurance to mitigate potential claims.
- Establishing procedures for dispute resolution and recordkeeping.
Investing in legal planning upfront often prevents disputes from turning into costly litigation, while also giving business owners confidence to focus on growth. If you are opening a new business, or have an established business focused on expansion, contact Parker McCay to assist in your legal planning.