This week, our legal law expert David Walker completed his series on all things contract law with a look at how a small business owner should handle a contract breach.
Now, he responds to questions from readers that fear they have experienced a contract breach in some capacity.
(1) “Our firm has suffered reputational damage following a lost deal – do we have a case?”
We formed a partnership to submit a joint tender with a partner in the Republic of Ireland (ROI). We asked and agreed to them being the lead partner. We wrote the tender, which was signed off by the CEO in the ROI.
We won the contract but less than two weeks after the lead partner had signed and formally accepted the tender, the tender was withdrawn without any previous discussion or consultation.
As a result, we lost the tender.
Even though the customer said the lead partner had breached the terms of the contract, they decided not to sue.
We are now left with our reputation in tatters with the client, and with a significant financial loss – the tender was for three years with a two-year extension option.
We asked the lead partner for proposals to compensate us but they have refused. We then asked for a meeting to discuss, but this lasted less than five minutes. The lead partner listened to us and has since said they would get back to us.
Have we acted properly? Do you consider we have a legitimate case?
Why did the lead partner pull out? If there wasn’t a good reason and they did so in breach of your partnership agreement, then there is potentially a claim here.
It’s hard to say much more without knowing the circumstances, but if someone is in breach of contract you’re entitled to bring a claim for compensation to put you in the position you would have been in had the contract been carried out properly.
As with all disputes you need evidence, and the customer will be key witness here.
(2) “Has our former employee stolen our clients?”
I am currently in what I feel is a contract breach situation.
My small business – a school – recently had an employee leave the company. This took place over the summer break. Once we returned, we learned that four of our private tuition clients (of whom this employee was the tutor for) decided not to continue their relationship with us.
In our employee contracts we have a clause stating that teachers are not allowed to entice away or work for any of our clients for a period of 12 months after the end of their contract. In this instance, the elapsed time was around three months.
Unfortunately, we do not have any proof that these four clients are currently being taught by the ex-employee, and we are unsure how to prove it even if they are.
This represents quite a large loss of business for us – around £15,000-£20,000.
Please can you advise us?
There are a few points here. First of all, with no proof there is nothing you can do because any legal action would be decided on the evidence you present.
Secondly, the teacher could possibly claim that the restrictive covenant in their contract was unreasonable and that it prevented them from earning a living.
It may be reasonable for you to prevent the teacher from approaching your clients, but is it reasonable for them to turn the clients away if they approached the teacher?
There are no hard and fast rules here – every case would be looked at on its own facts and situation.
Then, you have the issue of whether the teacher approached the client or the client approached the teacher, and proving it if they stuck together.
The final point is that the clients may have left anyway. These cases are always difficult because of the lack of evidence and it comes down to one person’s word against another in order to prove a contract breach.
Catch up on David Walker’s contract law series for Business Advice.
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