Generally, for most stakeholders in a business, whether it’s the owners, management or employees, the need to clearly define and document business relationships is an onerous and often daunting task. To ensure that a business operates smoothly, internal business relationships (i.e. with employees) and external business relationships (i.e. with suppliers), should be understood by both parties and defined with clarity to avoid misunderstandings. This article looks briefly at the need for clarity from the outset and highlights some of the pitfalls to be avoided. Some helpful points to remember are:
- As an employer – it is imperative as an employer (and an employee), to understand the difference between employment contracts, which set out the specific terms and conditions of employment and staff handbooks which deal with policies, processes and procedures at work whether in line with statutory requirements or otherwise. In order to avoid conflict in the workplace, an employer should be clear and precise about performance standards required from its employees and also be proactive in setting out rules and standards at work but these should be in a handbook rather than a contract as policies and procedures are far easier to amend than contract terms and this can often be done unilaterally rather than by agreement with staff. If policies and procedures are made contractual, then any breach by the employer could result in constructive dismissal claims.
Remember, an employment contract is like any other contract. Its purpose is to define as clearly as possible the duties and obligations each party owes to the other. Where there is any ambiguity, the contract will be interpreted in favour of the employee not the employer so beware! If the employer wants to be able to vary contractual terms, then specific provision should be made for such variation within the contract itself. Furthermore, job duties should be set out as broadly as possible so as to give the employer sufficient leeway should the needs of the business change.
- Terms of business with clients or customers – terms of business should be clear and unambiguous. The importance of clearly stating the scope of your services or delivery terms cannot be underestimated. Have payment terms been set out? Have services been clearly stated? What about deposits and refunds? You need to think of every eventuality and ensure it is covered in the contract as if not, terms will not be implied and you, the business owner, are likely to lose out. Even if a dispute over a contract can be resolved with the client without recourse the courts, the dispute itself is likely to result in the loss of that customer from the business.
- Terms of business with suppliers – these can be tricky. Suppliers often want to rely on their own standard terms whereas you as the business owner probably want to set your own terms. The negotiations around this can be tedious and time consuming but they are important, particularly in relation to terms dealing with delivery times, pricing and refunds . If a business issues “standard terms”, it is important to check them and, if you want to, negotiate or send out your own standard terms. In law, this type of situation is referred to as ‘battle of the forms’ and the rule is that the party that fired the last ‘shot’ has their standard terms and conditions incorporated into the agreement. Drafting a good clear set of terms and conditions, can save a business money in the long term by addressing most issues from the outset.
By defining business relationships from the beginning, future misunderstandings and costly conflicts can be avoided and more productive long-term partnerships can be formed for all parties.