The 7 Key Legal Risks in a Business

1. THE 7 KEY LEGAL RISKS IN A BUSINESS and How to Avoid Them! THE 7 KEY LEGAL RISKS IN A BUSINESS and How to Avoid Them! 1 www.aspectlegal.com.au

2. THE 7 KEY LEGAL RISKS IN A BUSINESS and How to Avoid Them! One of the worst things that can happen to businesses of any size is an operational misstep that is accompanied by crushing legal repercussions. Throughout my legal career, I have consistently seen that legal issues in an organisation, often costing tens of thousands of dollars in time and costs, could almost always have been avoided. Fore-warned is fore-armed. So in this e-book we outline the top legal risks, how you can identify and avoid some of these landmines, and the potential cost of failing to understand these areas. We also show how you can be proactive instead of reactive and start minimizing your risks before they get out of control. Joanna Oakey 2 www.aspectlegal.com.au

3. THE 7 KEY LEGAL RISKS IN A BUSINESS and How to Avoid Them! aspect legal’s specialist commercial services OUR KEY DIFFERENCES TO OTHER LAWYERS OUR SERVICES $ % Highly responsive services Commercial Contracts Intellectual Property Experience and Quality Business Sales & Acquisitions Procurement Team players Commercial focus Litigation & Dispute Resolution Employment We truly care Free Initial Consultation Contact us Disclaimer: The material contained on this publication is provided for general information purposes only and does not constitute legal advice. You should not depend upon any information appearing on this website without seeking legal advice. We do not guarantee that the contents of this publication will be accurate, complete or up-to-date. Liability limited by a scheme approved under Professional Standards Legislation 3 www.aspectlegal.com.au

4. THE 7 KEY LEGAL RISKS IN A BUSINESS and How to Avoid Them! Index Page 1. A failure of Contracts / 5 2. Unread Fine Print / 8 3. Dealing with Disputes / 9 4. Keeping on top of cashflow by developing the right internal systems / 10 5. Identifying and protecting IP / 1 1 6. Staffing / 15 7. Not keeping up with legislation / 17 Where do i begin? / 19 4 www.aspectlegal.com.au

5. THE 7 KEY LEGAL RISKS IN A BUSINESS and How to Avoid Them! (1) A FAILURE OF CONTRACTS Almost every business dispute we have seen at Aspect Legal has been born from a failure of the contractual relationship between the parties. Almost every business dispute we have seen at Aspect Legal has been born from a failure of the contractual relationship between the parties. Sometimes this is because contracts that have been used are outdated. Sometimes it is because the contracts used are simply inappropriate for the way they are being used - with far too many clauses that are irrelevant, and far too few clauses around the parts of the relationship that are key. (as an aside, this often happens when people use inappropriate templates). In other cases the issues stem from the fact that the contract being used is long, hard to read, and often containing ambiguous clauses. Or because the contract fails to clearly set out the minimum requirements of the relationship, and the consequences (in legal speak, the “remedy”) for a failure to meet those minimum requirements. It seems obvious that all of these areas would be dealt with in each contracting situation, however the reality is that because contracts are often times long (and lets face it - often fairly boring!) the essence of the reason for the contract can be lost amid the sea of words. So what is the solution? It starts from a fairly simple minimum starting position that every business relationship needs a contract in place. A solid contract, that properly reflects the essence of the relationship between the parties, that helps to properly set up the relationship between the parties, and that regulates what happens if expectations of the parties are not met. Because the reality is that in the majority of cases we see, day in and day out, if a contract clearly deals with a particular matter, in an appropriate way, then the parties are far less likely to ever end up in legal dispute. Thereby saving relationships, time and money! 5 www.aspectlegal.com.au

6. THE 7 KEY LEGAL RISKS IN A BUSINESS and How to Avoid Them! But how do you get this in place? 1.Create the right systems Firstly it is about putting the systems in place to ensure that someone in the organisation is responsible for ensuring that each business relationship has a contract in place, before the relationship commences. 2.Create an environment to make contracting easy You need to create the environment where forming those contracts is easier - so we suggest that you use templates to give you an unfair advantage. From client contracts to supplier contracts and everything in between, every organisation, no matter what the size, should have a good template library of documents to use to protect it against risk. The right suite of templates provide the backbone for making it much easier to ensure that every relationship has an appropriate contract in place before embarking on new business relationships. Both by having a contract on hand that you can use with your contracting parties, or where you are in the position of the other party requiring you sign their agreement, having a template at least gives you something to cross check against, to understand the difference between the approach used by the other party, against the approach that is best suited to your organisation. Further, your template documents need to have the right clauses in place to provide proper protection, in a way that is clear, and in language that the other party understands. Too often we see cases of organisations using old outdated templates that don’t reflect their current business practices. Or that are hard to read, and often dangerously ambiguous. Or that are missing critical components. 3.Manage your contracts Once your contracts are in place, you need to ensure that the people who deal with the contracts know what is in them. The best contracts don’t spend their life sitting in a dusty bottom drawer. The staff implementing them understand what they say, and ensure that the commitments in them are adhered to. 6 www.aspectlegal.com.au

7. THE 7 KEY LEGAL RISKS IN A BUSINESS and How to Avoid Them! For example, this means that in relationships with your clients, staff who are involved in implementation of the relationship know and understand what your organisation is required to deliver - in order that you can over-perform (not under-perform!) and exceed client expectations. But additionally, that staff within your organisation are ensuring that clients are meeting their obligations - to provide information when required so you can do your job properly. Or to pay on time, all the time! And in relationships with suppliers, your suppliers should be managed to ensure they meet the elements of your relationship that you most value. The Take-away: A failure to have the right contract in place is the basis for most issues that large and small businesses approach us about, and result in disputes that often cost hundreds of thousands of dollars. Ensure you have systems set up to support the minimum requirement that your organisation underpins every new business relationship with the right contractual protections. 7 www.aspectlegal.com.au

8. THE 7 KEY LEGAL RISKS IN A BUSINESS and How to Avoid Them! (2) UNREAD FINE PRINT Similarly, many clients fail to understand the ins and outs of a contract they have agreed to. They may instead spend time negotiating clauses that are less relevant or just signing their rights away, because they have a relationship with the other party. We regularly deal with clients ranging from multi-national corporations, through to small operators – and one thing that is absolutely consistent among every different type of client is the likelihood that there are contracts within that organisation that have been signed without someone completely understanding what they are signing. This can happen for a variety of reasons - but most often simply either because the full gravity of the clauses weren’t properly understood, because one of the parties mistakenly felt that they had no right or ability to negotiate, or because a decision on the impact of the contract was made on the basis of the contract price rather than contract risk. This last point is an important one, because many contracts carry a far greater amount of risk than is usually understood. That might be completely out of proportion to the contract spend. Liability clauses, and IP clauses are often among the most risky. Not only can this introduce great risk to a business, it can also significantly impact the sale price for businesses that are growing with a plan of exit in the future. We have seen clients with indemnity clauses that leave them holding risk that far exceeds the value of the contract. And termination clauses that prevent termination of an underperforming contract or a rollover clause that leaves a party trapped in a contract that has rolled over to a new term without them realising it. We have seen accidental failures of organisations to properly protect their intellectual property rights in agreements. And damages clauses that far exceed the likely true risk position. And of course, the list just goes on... These are all examples of clauses that can easily transform into difficult and expensive predicaments to resolve, yet could have been avoided with proactive, simple advice. Take-away: Ensure that every contract within your organisation is read, and properly understood, before it is signed. 8 www.aspectlegal.com.au

9. THE 7 KEY LEGAL RISKS IN A BUSINESS and How to Avoid Them! (3) DEALING WITH DISPUTES Too often, we see businesses seeking legal advice way too late, and in the meantime they have gotten themselves into a much bigger, expensive and time consuming battle than was needed. If you find yourself in a dispute, seek advice as soon as tension arises. Ask yourself what resources you have in place today to quickly and efficiently deal with disputes when they appear. Be careful in your responses to a party you are in dispute with, in order that you are creating a paper trail that will support your arguments, but not making admissions that might harm 9 www.aspectlegal.com.au

10. THE 7 KEY LEGAL RISKS IN A BUSINESS and How to Avoid Them! (4)KEEPING ON TOP OF CASHFLOW BY DEVELOPING THE RIGHT INTERNAL SYSTEMS The biggest problem affecting many growth businesses is cashflow. Without proper attention to cashflow, the lifeblood of any company, even a profitable organisation can put itself out of business. This is an important issue for both large and small businesses, as the issues faced by SME’s are often also faced by large businesses, in a substantially amplified context. The worst part is, many organisations that have failed due to insufficient cash flow, could have succeeded simply by having the right systems in place. Systems like:  contractual protection against non-payment  rigorous debt collection systems  solid thought out approaches to the way they engage with their customers (including considering registrations on the PPSR)  and by understanding the warning signs of customers that might be about to face solvency issues (so you can act quickly before you become stuck in a list of unpaid creditors). Setting up these systems before problems appear is key to ensuring the success of your business. 10 www.aspectlegal.com.au

11. THE 7 KEY LEGAL RISKS IN A BUSINESS and How to Avoid Them! (5) IDENTIFYING AND PROTECTING IP Intellectual property is such a broad topic, that it deserves a book all on its own. This area is immense, I can’t tell you the number of times we have had clients suddenly facing issues because they just haven’t understood how to protect their IP, or why they would want to. This is an area of law that can provide so much value when done well, and so much risk when done poorly. In summary, intellectual property (IP) refers to creations of the mind. Things that are intangible. The issue with IP is often that whilst it can be very clear if real property has been stolen (if you own a chair, you can tell if it has been stolen because it will no longer be where you left it), it can be much harder to detect IP infringement, and to prove your ownership in order to enforce your ownership rights. Intellectual property (IP) is often one of a businesses most valuable assets, yet frequently one of the most unprotected. Getting this area wrong can lead to a business being hit with infringement actions, or a failure to be able to stop competitors and others from improper use of their intellectual property. We frequently see businesses failing to take the simple steps to properly protect their trademarks, and other IP rights, that end up costing their business tens or hundreds of thousands of dollars - most of which is often entirely preventable. Neglecting IP can lead to a lot of expensive outcomes for businesses. The types of issues we see play out regularly resulting from a poor IP approach are:  loss of client databases  inability to stop other people using your businesses’ IP – this can be caused by a businesses’ failure to understand its IP, and by its failure to protect it  not owning the underlying rights to the IP, or not being able to prove your business owns it  not having sufficient protections built into your agreements with suppliers, customers, staff, partners, distributors and manufacturers 11 www.aspectlegal.com.au

12. THE 7 KEY LEGAL RISKS IN A BUSINESS and How to Avoid Them! Often examples can be useful, and in this area I have no shortage! In the last few months for example I have seen one business have to throw away more than $60,000 it had spent in marketing costs for the development of a new brand, because the marketing company hadn’t thought of trademark searching as part of the concept development process. When we were approached to help in the last few days before the new brand went live, we had the unenviable task of breaking the news that not only could this new brand not ever be protected by our clients, but that if they used it, they would be at risk of an infringement action on their hands by other people who had trademarks that were similar (who we identified to be large organisations, with likely deep pockets for trademark enforcement actions!). The marketing company had a small understanding of trademarks and, in a classic example of where a little knowledge can be dangerous, organised their own trademark searching along the way. Unfortunately trademark searching can be quite tricky, and whoever was searching missed a couple of hard to find, but very important marks – resulting in choosing a brand that would have delivered a massive amount of risk. Whilst this was a terrible waste of the months of concept development (and marketing fees!) at least we were able to catch the issue before they went live with the brand and help them come up with a safe brand to move forward with. Which was much better than another client we recently dealt with who was forced to change their entire company brand after more than a decade of use, because they had simply not thought of trademark registration earlier. The sad part of this story was that if they had come to us just 6 months earlier than they did (in their decades of use), we could have saved the brand for them. But timing can be absolutely critical with trademarks, and this case was the perfect example of what a difference a few months can make. However one of the worst stories I have seen in this area came from a business that had been around for 50 years with a brilliant and catchy name, who lost monopoly rights to the use of the name simply because they had no understanding of the importance of a trademark registration! The kicker was that when buyers of the business found out about the issue, the sale fell through, leaving the business owner with an unsaleable business. Not the kind of news you want to hear with a business you have devoted 5 decades to! But of course we also have lots of tales of IP woe outside of the area of trademarks. 12 www.aspectlegal.com.au

13. THE 7 KEY LEGAL RISKS IN A BUSINESS and How to Avoid Them! The most regular IP issue we see outside of trademarks is the loss of important information by companies through a lack of proper contractual protections. We so often see ex-staff heading off to competitors or setting up their own businesses and poaching clients and other staff members. This can be extremely difficult to prevent if the business doesn’t have the right clauses in their agreements with their staff. The other issue we see regularly is caused by the mistaken belief that if a business pays someone to create IP for it, then you (the customer) will own the underlying IP rights. The reality is that if you have someone create IP for a business who is not an employee, then you must have an agreement with them that assigns that IP - otherwise they will most likely retain the underlying rights to what they have created. Which means they might be able to go and use it with one of your competitors. Or they might be able to prevent you from using it in certain ways. And certainly this can impact your business not just in terms of what you can do with your IP, but also the value of that IP. I have seen many examples of massive losses caused by this approach. For example an organisation that paid a large amount of money for training to be created for its staff, without ever thinking about the question of who owned the underlying intellectual property rights in those training materials that had been created. The client assumed they owned the rights, because they had paid for them to be developed. But because the training agreement didn’t have any clause assigning the client the IP rights, the trainer argued that they owned all the IP rights, that they were free to go and use the training materials with competitors of the clients, and that they were free to restrain the client from using those training materials with other trainers. 13 www.aspectlegal.com.au

14. THE 7 KEY LEGAL RISKS IN A BUSINESS and How to Avoid Them! We were able to help them deal with the situation but it cost a lot of time, money and stress, and could have been completely avoided if the client had inserted some simple IP assignment clauses in their original agreement with the trainer. There are many considerations when dealing with intellectual property rights of a business, including:  Contractual protections around IP created for the business (including the proper assignments, and warranties)  Contractual protections to prevent staff, contractors and others from taking or misusing IP  Internal training for staff in identifying and dealing with IP rights  Trademark registrations for trading and product names and logos  Enforcing IP rights against misuse by others But the simple starting point for any business is identification of important IP, and the development of a sensible IP protection plan, in order to prevent issues from occurring, and to protect value in the business. 14 www.aspectlegal.com.au

15. THE 7 KEY LEGAL RISKS IN A BUSINESS and How to Avoid Them! (6) STAFFING The nuances of the legal environment relating to dealing with employees and contractors are extremely complicated. However, there are a lot of simple steps you can take to protect a business in this area that are just a matter of having the right understanding, and putting the right systems in place. For example, you must monitor any event that could be deemed a dismissal closely. We had a case where a worker left their job voluntarily, but later decided to claim the event as an unfair dismissal. He then demanded back pay for an unpaid 15 minute tea-break every day for the past seven years. Whilst Aspect negotiated a settlement that saved the client more than $50,000 on what was originally claimed, all costs could have been avoided from the outset by having the right systems and processes in place. If you have a disgruntled staff member, always seek legal advice before resentment erupts. If you are considering termination, make sure you know what you’re doing, and have set up your position to protect against an unfair dismissal claim. On the other hand, if the worker quits, ensure you have the right documentation in place to avoid the tables being turned. 15 www.aspectlegal.com.au

16. THE 7 KEY LEGAL RISKS IN A BUSINESS and How to Avoid Them! Other staffing issues can arise from a failure of proper policies, training and documentation. Do you have the best policies in place for bullying, harassment and discrimination to ensure that ‘work’ is a place that your employees are happy to attend each day? Do you have staff policies in place to restrict the way that your staff deal with your social media and indeed how they can continue to engage (or not engage as the case may be!) with social media connections after they’re no longer employed with your business? So for example you might want to ensure that they don’t stay connected to clients of the business after you have part ways, even through social media. What systems do you currently have in place that may be infringing workplace surveillance laws, potentially exposing you to criminal penalties? A proactive approach to each of these areas within a business can save tens of thousands (and often hundreds of thousands) of dollars. 16 www.aspectlegal.com.au

17. THE 7 KEY LEGAL RISKS IN A BUSINESS and How to Avoid Them! (7) NOT KEEPING UP WITH LEGISLATION The last area that I want to highlight is ensuring that you have a general understanding of relevant legislation, and the changes that occur over time. Even though this is the last it is certainly not the lease of our landmines, and the ramifications of non compliance can range from small reprimands, to massive fines and civil actions. Whilst every type of organisation may have a different particular set of legislation and regulation to contend with, some of the biggest landmines we see going off in an unwary business, are common across industries and sizes of business. It is imperative that every business understands the provisions of the dense legislation that is the Australian Competition and Consumer Act. Get yourself across the unfair contract terms legislation that applies to standard form contracts. The legislation may apply to you in your contracts with your clients, and may also apply in relation to contracts that you sign with your suppliers and others - so make sure you understand your rights, and obligations, under this legislation. Ensure you have an understanding of the Consumer Guarantees, which can step in to help you in many supply relationships where you are the customer (or perhaps instead cause you pain where you are the supplier!). Take a look at the legislation restraining businesses from engaging in misleading and deceptive conduct. This is extremely important legislation that appears again and again in disputes we help resolve, and even in contractual arguments. Of course, the Competition and Consumer Act is not the only legislation relevant to your business, but its a good first start! Other legislation that you should be thinking about are those relating to spam laws, to ensure that you have the required permission before sending out marketing emails. And finally, make sure you understand privacy laws, and that you have the consents, policies and collection statements in place that are relevant for your business. Ensure you are across recent changes in these laws, like the data breach changes, and the advent of international regulation can impact business in Australia, like the EU GDPR. The legislation we have talked about here is obviously not the only legislation that businesses must comply with, but simply a snapshot of where we most often see issues across all industries. 17 www.aspectlegal.com.au

18. THE 7 KEY LEGAL RISKS IN A BUSINESS and How to Avoid Them! Now that you have reached the end…. I’ve spent decades watching the difference between businesses that are caught in an often regular quagmire of legal pain, and those that navigate the legal environment successfully and efficiently. The real difference comes down to planning, and preventative action. So hopefully this short ebook has provided you with a good overview of the top legal landmines - in order that you can use this little bit of knowledge to help avoid the landmines blowing up in your face! 18 www.aspectlegal.com.au

19. THE 7 KEY LEGAL RISKS IN A BUSINESS and How to Avoid Them! WHERE DO I BEGIN? Aspect Legal offers a number of commercial legal services to help businesses navigate (and avoid!) the legal landmines. If you would like to get started with a free consultation, click here. Free consultation Or simply contact us to start a discussion: Start a discussion And if you would like to find out more about each of the areas in this book, then head over to Aspect Legal’s free podcasts - Talking Law and The Deal Room - available here: Free podcasts and on your Podcast Player on iphones and android. Email: enquiries@aspectlegal.com.au PhonE numbEr: 02 8006 0830 officE location: Top Floor, 6/10 Rodborough Road Frenchs Forest NSW 2086 19 www.aspectlegal.com.au