Contracts fulfill many roles in the business world, but perhaps the single most important role is to protect your company from the threat and ramifications of lawsuits. Even if you win the case, a lawsuit has numerous negative implications for your company, including adverse consequences for your financial well being, productivity, and your reputation. After all, litigation is expensive and no one can run an effective business when they are constantly dealing with legal issues.
Unfortunately, we live in a world where businesses can be sued for frivolous reasons like the well-known case of the woman who brought a successful lawsuit against McDonald’s because her coffee was too hot.
The fact is, ironclad contracts and agreements are necessary in all of your company’s business dealings if you want to minimize your chances of facing a lawsuit. However, simply having a contract in place is not enough in and of itself to deter and prevent your company from ever being sued.
While nothing can guarantee protection from lawsuits, your contracts can be structured in such a way as to give your company the most leverage possible. Doing so will give you the upper hand in any case you face, and preferably will act as a powerful deterrent against lawsuits, and frivolous lawsuits in particular.
The word “frivolous” is defined as, “silly” and “not deserving serious attention.” When someone seeks to bring a ridiculous or unnecessary lawsuit against your company, you must have clauses in place in your contracts with those individuals or entities that will make them think twice about pursuing nonsensical legal action. The single most important clause that your contracts should include to deter frivolous lawsuits is the Prevailing Party clause.
The prevailing party clause of a contract states that, if legal action is taken against you, then the party that loses the lawsuit will be forced the pay the legal fees of the prevailing party. Thus, if someone brings a frivolous lawsuit against your company and loses, they will have to pay the expensive litigation bill for you. The prevailing party clause creates a significant consequence where there otherwise would be none.
Without a prevailing party clause, anyone could attempt to sue you for just about anything and not have to fear any repercussions should they lose the case. Most people who know they do not have a good reason to sue and are just trying to get a payday will not bring a lawsuit against a company when there is a threat of financial ramifications should things not go the way they intended.
Ultimately, no aspect of a contract or agreement can guarantee protection from lawsuits. However, including a prevailing party clause in your contracts can act as a significant and effective deterrent against those who would seek personal gain through bringing frivolous legal action against you. For assistance in drafting and utilizing effective contracts in your business dealings, and in creating a favorable prevailing party clause, please contact the Trembly Law Firm today.