Legal Issue or Business Issue? The Importance of Sorting Them Out.

One of a lawyer’s important roles as a trusted advisor is to help a businessperson sort out the legal issues from the business and other non-legal issues. The longer I do this, the more I find myself hitting “pause” in a conversation with a client and saying, “That’s not a legal issue.”

That doesn’t mean we are not going to talk about it. In fact, a lawyer should want to know her clients’ businesses well enough, and the clients to realize that she does, so that she can be helpful to them in considering how their priorities, values and challenges translate to the right legal decision for their businesses. But, it is important to understand and analyze the issues differently.

First, most legal issues still require a business judgment call, which ultimately is the client’s. It’s your business, no matter how much you trust your lawyer and value her input. At one level, our job is to give clients a range of options on a legal issue, and the likely risks and legal costs associated with each option. There are a few virtually universal “no brainers” – for example, probably don’t respond to a sexual harassment complaint by summarily terminating the complainant.

But most legal issues require a judgment call made in a somewhat gray area. There, it is the client’s job to make the decision that is right for the business. For example, different clients have very different levels of risk aversion. If I tell client A that, in my opinion, there is a 50/50 chance it will get sued for terminating a particular employee and, if the employee sues the client there is a 50/50 chance the client will lose, client A will shrug and proceed. Faced with the same scenario, client B will run away screaming, and retain a bad employee longer than they should.

Sorting out the business from the legal is another level of advice. Experienced lawyers and businesspeople know – the two types of issues get intertwined. It is important to see which is which. Sometimes clients expect the legal side to fix things that ultimately are business issues. Two such areas that I encounter in representing employers:

1. Enforcing the business’ rights under a noncompete agreement will not solve a customer issue. We commonly help businesses enforce their rights under what are known as restrictive covenants. That can mean a full noncompete agreement that prohibits an individual’s employment with certain companies for a certain period of time and/or lesser measures like a covenant not to solicit the now-former employer’s customers or employees. In Ohio, as in almost all states, these agreements are scrutinized carefully by courts to ensure they are reasonable in their scope, but employers are able to enforce them to that extent.

However, no agreement, nasty lawyer letter, or court order can fix a broken customer relationship. When a client calls to discuss a potential violation of one of these restrictive covenants, that first conversation always includes the statement from me, “Remember, no matter what we do and how this plays out, you still have to go win this in the marketplace.” No matter what level of enforcement you get on your agreement, it cannot make customers do what you want. The business has to do that.

2. No policy or disciplinary measure can make employees trust and respect management. I often tell groups of employers, while it is a fact of doing business that you will have difficult employees and that some of them will institute legal proceedings against you, it is my observation that the most successful businesses are the ones that have proportionally fewer and less serious employee legal issues.

Why? They are mission-focused and well-managed. So, for example, they are less likely to encounter discrimination issues because, if a company is successfully selling widgets, it doesn’t care what race, gender, religion, or age an employee is. And because the company is mission-focused and well-managed, it has the data to explain – including to a judge, jury, or agency if necessary – how many widgets it is selling.

Also because that company is mission-focused, it is communicating clearly to employees about expectations, constantly encouraging behaviors that serve the mission, and constantly nudging other behaviors to the side. Most employees respect and respond to that. Those managers do not get that from their lawyers.

Likewise, for managers who do not effectively communicate and manage, lawyers alone can’t fix that. The company needs to earn that in the employee marketplace.

Your business’ lawyer may not be able to fix these business issues for you, but she can help you identify and focus on them in conjunction with advice on the legal aspects of the issue.

Barnes & Thornburg LLP is 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.