This post is part of Priori’s blog series “From Our Network,” where we feature lawyers in our network discussing important issues small businesses face. After every post, we give our readers a chance to ask the lawyer questions, and the lawyer picks several to answer. In today’s post, litigator Matthew Currananswers reader questions about how to avoid litigation when terminating a bad contract.
Q: I don't have a termination clause in my contract, but I want to end my relationship with the vendor. Should the conversation start with me, or should I hire an attorney right away?
A: It depends on several factors. First, your reasons for wanting to end this relationship matter. Is the vendor not performing adequately? Do you simply not need their goods/services any longer? Second, how is your relationship with this vendor? If you know them well, perhaps the discussion can start with you. I think the initial conversation could start with you, but you may want to briefly confer with your counsel first to go over talking points and identify potential pitfalls you will want to avoid.
Q: How do you avoid "burning bridges" with the other side when terminating a long-standing contract?
A: Terminating a long-standing contract can create tension, but there are ways to minimize the impact. The best way to avoid “burning bridges” is to leave the door open for future business. Just because things are ending now doesn’t mean that months or even years later, there won’t be the opportunity to work together again. Another tip is to always keep communications professional and civil. Even in a termination context where the possibility of future business is remote, you never know when you might need a customer reference or your contact will join a new company that could be a prospect. Keeping a cordial tone and demeanor regarding the termination will help minimize any negative impact to the relationship.
Q: Do you recommend using arbitration clauses in all of your business contracts?
A: Arbitration clauses can be useful, but I would caution against a blanket policy of implementing them in all your contracts. More and more courts are implementing business dispute “rocket dockets” so in those jurisdictions, arbitration is not necessarily the best way to litigate your case quickly and efficiently. Moreover, arbitration awards are rarely subject to appeal. It’s not uncommon for a party, after having lost in arbitration, to regret not having the right to an appeal, as it exists in civil litigation. I recommend taking a case-by-case approach toward the inclusion of arbitration clauses, taking into account factors such the parties to the contract, the value of the contract and the possible jurisdictions where a dispute would be heard.
Photo Credit: Jérôme Dessommes via Wikimedia Commons