10 legal blunders – and how to avoid them
Tuesday, 5 February 2008
Last Updated: Tuesday, 5 February 2008
By Mike Preston
The law has always been a minefield for business owners, but increased public scrutiny, and recent legislative changes, mean legal problems are now more likely to ruin an entrepreneur‘s reputation – or put them in jail – than ever before.
The public appears to be eager to see heftier penalties for legal breaches that take place in the business context, a sentiment that surfaced recently after the fall from grace of high profile Visy Corporation chairman Richard Pratt.
Pratt and Visy were fined $36 million for engaging in price fixing, an amount that many felt barely scratched the surface of his $5.4 billion fortune.
The new Rudd Labor Government quickly responded to public outrage over the penalty by announcing it would pass laws to impose jail sentences of up to five years for serious cartel conduct.
While not all entrepreneurs who make legal errors are publicly flayed like Pratt, even a relatively innocent failure to get the legals right can have serious consequences for a business – and its owner.
Lawyers say often entrepreneurs get into hot water because they fail to understand the business consequences of not addressing legal issues if there is a problem down the track.
When it comes to the law, business owners can’t afford to stick their head in the sand or just leave to the lawyers. It is much better to understand where the legal pitfalls lie.
Here is SmartCompany’s list of 10 of the most common errors business owners make, and how to avoid them.
1. Don’t get into bed with the competition
The Visy/Pratt affair late last year saw price fixing take its place among the most heinous of business sins.
Price fixing essentially involves an agreement between competitors in an industry to go easy on each other – perhaps by secretly agreeing not to compete for certain tenders – in order to extract greater revenue from consumers.
While the most recent high profile cases have involved big business, SMEs should realise they are just as vulnerable to prosecution under anti-price fixing laws, according to Van Moulis, a competition law expert with Slater & Gordon.
Moulis cautions that seemingly innocuous actions, such as having a drink at the pub with a few of your competitors, can land a business owner in very hot water.
“There are several cases where blokes have been caught having a drink at the pub or a chat on the phone where it’s been wink wink, nudge nudge,” Moulis says.
“In one case all the scrap metal dealers in a part of Sydney would meet in a pub once a month and compare the tenders they were going to put in, and work out who would get what. They weren’t big businesses, but they got caught and paid the price.”
And that price can be serious. Financial penalties including fines of up to $500,000 per offence or, under legislation soon to be introduced into Parliament by the Government, a jail sentence of up to five years.
Moulis advises business owners to tread carefully in any dealings with competitors – and remember that the Australian Competition and Consumer Commission has been given coercive powers to seize any documents or computer records it needs to build its legal case.
2. Make sure you understand international terms of trade when exporting
When in export negotiations, knowing the difference between requiring goods to be delivered FOB, FAS or FBA can be the difference between a deal that makes money and one that loses it.
These acronyms – they mean Free On Board, Free Alongside Ship and Free Carrier respectively – and are just a few of the many accepted terms of international trade known as incoterms and, according to Lynda Slavinskis, principal of export consultancy and law firm Lynda Slavinskis Lawyers, exporters fail to understand them at their peril.
“Incoterms dictate fundamental issues, such as who carries costs and risks of transport, who is responsible for having goods delivered on time and who pays export and import fees – and they are the crux of any international trade relationship,” she says.
Slavinskis says she is constantly surprised at how many exporters, particularly those just starting out, don’t know of the incoterms, get them confused, or fail to have them included in contracts.