Should I Go To Small Claims Court to Resolve a Dispute?
As a small business, it is very likely that you will run into a dispute with a client at some point in your career. And by very likely, we mean that it is almost impossible to avoid. It’s important to remember that disputes with a client have no reflection on you as a business owner, but instead are unavoidable issues that we all go through. But what do you do when this happens and how can you avoid it in the future?
Remember these three steps:
- Small Claims Court, and
Anytime a dispute arises with a client, your first step should ALWAYS be to work with them and try to come to a resolution amongst yourselves.
For example, say that the client is not paying their fees and has decided to break the contract near the event date. You may now be thousands of dollars out of revenue due to not being paid by this client and turning down other potential clients for this event. When this happens, it’s time to come face-to-face with the client (or do this virtually through Zoom or Google Meet) and try to negotiate some sort of deal that helps mitigate your losses in this situation. For example, you can hold the client to the full contract and provide payment plans or maybe reduce the overall cost. Or, perhaps your clients aren’t willing to pay, but then you hold back their products until they do. The goal for negotiating on your own with your client is to see where they’re coming from and try to find a mutual solution. Oftentimes people just want to be heard. And, many clients are rational humans that can understand their obligations under a contract they did indeed sign. So, even if it takes a few back and forths, you can probably figure out a remedy. Also, DIYing negotiations will save you tons of money. However, at the end of the day, understand that in some rare circumstances this may not work and you’ll have no other option but to move forward with filing a suit with Small Claims Court.
2. Small Claims Court
Small Claims Court is always an option for resolving a dispute, however it is a choice that should be carefully weighed before filing the claim. Why? Well, it can be very expensive.
You will need to pay filing fees, miscellaneous court fees, and attorney fees, if you need one. (Note: you can always represent yourself ‘pro se’ in small claims court!) Further, you need to consider the amount you are suing for as many Small Claims Courts will only allow a certain dollar amount to be claimed (i.e. if your fee is $7,500, the court may only allow up to $5,000, which means you’ll then have to file in regular state court). Also, if you’re only suing for a small amount around $1000-1500 you could end up earning little-to-no money from the ordeal if the claim turns out to go on for a long period of time. Even if you win the entire amount stated in the contract, you are losing time that could have been focused on your business and other clients. Oh, and… even if you win that doesn’t mean the money is handed straight over to you from the client. Its very likely a judgment will be held against them and then you’ll take them to collections in hopes to one day collect the money owed (which can be a very tumultuous process that can take months or years).
HOWEVER, resolving a dispute through Small Claims Court can be a relatively fast process that costs you very little time and money. Not only does it help show your past client the importance of upholding a contract with small businesses but sets a precedent that you will not tolerate similar situations with other clients. If you do end up going to court, bring your signed contract with you and all the email conversations (and text/dms) you’ve had with the client. This will show the judge that you’re prepared to present your side of the dispute with legitimate evidence.
Overall, there are many pros and cons to resolving a dispute through Small Claims Court which is why we recommend working with the client before filing a claim. But again, you need to do what will best support and help your business. If you are unsure of what to do, it is always a good idea to ask for legal advice from an attorney in your hometown that better understands your county’s small claims court process.
After you come to a resolution with your client amongst yourselves or via a small claims court decision, you should reevaluate your contract and business policies to avoid future disputes.
It is not to say that your contract does not cover the problem at hand, but it is important to reevaluate your policies to reiterate to clients their obligations. Maybe there were some miscommunications that could be easily cleared up by changing up your onboarding process for new clients. Further, if you need to go to small claims court in the future, the more detailed your contract, the faster and easier it will be for a judge to make a decision.
Small Claims Court is always a valid option to resolve a dispute between your client, third-party vendors, or anyone you enter a contract with. It is never okay for another party to break their obligations to your business and should be properly handled. However, TLP recommends handling the situation personally before filing a claim. It will save time and be more convenient. Only you know what is the best avenue for your business and what is going to best resolve a dispute in your favor. If you need help making this type of decision, always seek out legal advice!
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THIS BLOG POST IS NOT A SUBSTITUTE FOR LEGAL ADVICE. EVERY SITUATION IS DIFFERENT & IS FACT-SPECIFIC. A proper legal analysis is necessary based on your location and contract. Consult an attorney in your home state for advice regarding your contract or specific legal situation.