Common Mistakes Businesses Make When Using Lawyers

Metropreneurial Legal Insights — By on February 16, 2012 at 8:00 am

I am going to tell you something that goes against my professional self-interest: the secret to lowering your demand for legal services. It goes without saying that it is in a business’s best interest not to spend more on lawyers than is necessary. Money spent on lawyers is money that cannot be spent on research, salaries, equipment, or marketing.

However, we see businesses continually make an avoidable mistake that hinders this objective. Seventeenth century English scholar Robert Burton called it being penny wise and pound foolish. Said to have been speaking of fire prevention, but perhaps also considering legal services, Benjamin Franklin said, “An ounce of prevention is worth a pound of cure.” And those of you watching television in about 1970 saw the Fram oil filter ads: “Pay me now or pay me later.”

Bill Nolan of Barnes & Thornburg LLP

In short, businesses often accrue significant legal fees in the long run by failing to spend a little money on preventive legal services in the short run.

This is self serving, right? Of course a lawyer is going to say you should call your lawyer now and get the meter running. However, lawyers make much more money when their clients are reacting to situations they no longer entirely control, situations that might have been prevented had they been addressed sooner.

In a preventive rather than a reactive posture, a project is managed by the business and its lawyer. Certainly there are laws and other outside forces that must be reckoned with, but you are in a position to be making decisions within those outside parameters.

In a reactive situation, the business and its lawyer control only some aspects of the project. They cannot control one or more third parties; we can only attempt to influence. This includes judges, juries, lawyers who are your adversaries, and government investigators.

With respect to perhaps the most expensive form of reactive situation, we can only partially control the litigation system, which is designed (for good reason) to allow the parties to discover significant amounts of information about each other’s cases. That’s expensive.  As a practical matter, the system only modestly limits a party’s ability to overdo that process. The creation in recent years of massive amounts of electronic information that may be relevant to a case only increases the costs of the litigation process.

So in my primary practice area of labor and employment litigation, I have seen, both firsthand and otherwise, dozens of cases where an employer spends legal fees into six figures over an issue that could have been avoided with literally a few hundred dollars spent on a lawyer at the early stage of an employment situation. Entire cases can turn on one or two facts that could have been managed in a preventive posture.

Workplace harassment is a good example. The law in effect dictates that an employer must follow up on allegations of workplace harassment, and may not retaliate against the employee who raised harassment concerns. The right or wrong word in the right or wrong place can make or break the company’s legal position relating to such allegations.

You are probably not in a position to spot all the potential nuances in responding to a harassment situation. A modest investment in planning an appropriate investigation that will best protect the business can dramatically influence the employer’s future legal expenditures on that matter.

There are many more examples in the employment area where preventive “medicine” will benefit a company: when you may lawfully terminate an employee who is often absent due to a medical issue; how you may respond to an employee’s hostile social media posts against the company; when it is safe to terminate an employee for performance reasons. No matter how savvy and well-intentioned an employer is, there are strategic considerations you won’t know in each of these scenarios.

It is easy to see why this preventive principle, seemingly so simple from a safe distance, is hard to apply in practice. First, it is hard to spend money that in fact does not have to be spent today. This is true of any preventive maintenance. Unless you believe –either from experience or because somebody you trust tells you so– that you may someday have to replace a broken down engine, you may not be very good about regular oil changes. Particularly with newer businesses, if they have not been through a lawsuit before, they may not appreciate the financial benefits of preventive legal practices.

Second, managers may resist raising their hand for legal help because they want to prove their worth. (I can handle this, Boss.) Of course, knowing what you know and what you don’t is much more valuable to the company than being all-powerful. Companies must train and empower managers to make that distinction rather than flying solo.

Your lawyer should help you find the best preventive measures. Ask the lawyer you trust what he/she thinks is the first preventive step your business could take that would most likely reduce future legal fees? No business can avoid legal situations it needs to react to, but ask and act on that question twice a year, and it will be a good investment in keeping the business mission-focused and out of reactive costly legal situations in the future.

Bill Nolan Bill Nolan (22 Articles)

Bill Nolan has practiced law in Columbus since 1989. In 2009, he opened the Columbus office of Barnes & Thornburg LLP, a large full-service law firm that seeks to take a more entrepreneurial and cost-effective approach both to client service and its own business. Barnes & Thornburg lawyers will be providing this column on a monthly basis.


  • http://www.themetropreneur.com/columbus/members/mroberholzer/ Marcus Oberholzer

    Great article, @Bill-Nolan. “Pay me now or pay me later”, sums it up perfectly! If you’re in business long enough, you can’t escape it. Do you have a case study or two to illustrate the point, and help convince the cash-strapped entrepreneurs follow suit?

  • http://www.themetropreneur.com/columbus/members/bill-nolan/ Bill Nolan

    Marcus, thanks. Case studies in the full B-school sense are tough for lawyers because of several levels of professional obligations that limit what we can say about most firsthand client experiences (and most clients are eager to volunteer to be a case study). But I agree it would be a great tool, particularly a case study involving a start-up showing how a preventable legal situation got the business off track. A “composite” of 2-3 similar situations blended together might do it … I will give that some thought and see if I can’t post something back. Thanks.