When Legal and Ethical Principles Collide

Article by:
Kurt Thomet, EO Portland
Kurt Thomet
EO Portland

Kurt is the President and Founder of Quest Solution, a leading integrator of mobile data collection systems offering solutions to improve business processes, production and profits. To reach Kurt, you can e-mail him at Kthomet@questsolution.com.

What have I learned as an entrepreneur? Much more than I ever learned in school.

But what has really stuck with me is one principle that continues to define how I run my business: Being right is not always the best tactic in legal disputes. If you’ve experienced a lawsuit, you know that they can really mess with your view of what’s right and wrong, good and bad, legal and illegal. In my case, it took more than a decade of experience, hundreds of thousands of dollars in legal bills and countless wasted hours to learn a very simple set of lessons.

In the 15 years that we have been in technology sales, we have had three very bad experiences with ex-employees— experiences that made me realize that being right isn’t always what’s best for you. Here are those experiences, as well as the lessons I was painfully and expensively forced to learn:

Know When to Walk
Our first bad experience was when an employee quit and began working for a competitor nthe following day. While this wouldn’t normally worry me, he happened to bring our prospect lists and customers along with him. We chose to pursue a lawsuit, and we hired a forensic computer specialist to prove that he had stolen our lists. Unfortunately, when that specialist was presenting the evidence in court, he froze. His lack of person-to-person communication skills derailed our case.

After having spent US$120,000 in legal bills, there was no victory. Thankfully, we were able to renegotiate with our law firm and reduce our bill to only US$25,000.

Lesson number one: Keep tabs of your legal expenses on a weekly basis as they pile up faster than the law firm can update you. More importantly, know when to walk, even when you are right. The ethical right versus wrong does not necessarily apply when you get sucked into a hole of legal disputes.

Commission Confusion
Our second bad experience involved a legal dispute with an ex-sales representative. The situation spiraled out of control when we decided not to pay a commission to an employee who had left the company. Though we were enforcing our company policy of not offering commissions for incomplete receivables, we found ourselves in a quandary. Because our commission is based on a three-part sales system—selling, delivering and collecting—we do not pay someone who leaves on bad terms … especially when that person starts a competing business.

Ethically, we have paid others in the past and they have gone on to be great allies. In this case, we did not pay and were promptly sued. In the dispute, the ex-employee tried to enact a state statute for sales representatives, which would give him three times the disputed amount. In Chicago, Illinois, USA, where the case was to be tried, they force you to work through non-binding mediation with a mini-trial and a panel of three ex-attorneys. We won our mediation when we proved that we had overpaid the employee by more than US$20,000, and that he was not an independent contractor. You’d think that would have put an end to it all, but it didn’t.

Unfortunately for us, the ex-employee came back for more, and they threatened to take it back to trial. Because of the expected high costs, we settled and paid US$5,000 to be done with it all.

Lesson number two: Although you are right and you fall in line with the letter of the law, it doesn’t mean you’ll necessarily save money. You are probably better off settling and avoiding the hefty legal bills all together.

Hawaiian Headache
You would think that we had learned enough legal lessons after two dreadful situations, but our third lesson was the most expensive and most painful. Five years into building my business, I brought on my old boss as a minority partner to run our sales. After four years of working well together, we decided to branch out into a new venture in Hawaii. Because the tropical state has a different business culture, our new Hawaii-based business partner was going to help us localize and adapt to these new ways of doing business.

Applying what I learned from my past two experiences, I invested in a “deepdive background check” before purchasing our new partners’ business. I kept him on as a partner and local manager. Two years later, we obtained e-mail trails that revealed how our new partner was an embezzler. We also learned that he had done this to major sports franchise organization in the past. Apparently, he had avoided jail by paying off his other “mark” with our money, which he bought the company with. This one really hurt and could have taken us down if the rest of our business was not setting growth and profit records.

As of today, we are still involved in a lawsuit to recover from this trust violation and the many laws that have been broken. Because we’ve faced similar situations, our past has taught us to work on contingency billing with our legal team and to offer a settlement as soon as possible.

Lesson number three: We have learned that if you must obtain a partner, a trial period of six months is required to learn how issues are resolved and what the true character of a potential partner is. I call it getting to know the family— and how that family deals with stress, pressure, problems and opportunities.

As optimists, it is difficult to spend any time with our setbacks. We have learned to respect the past, plan for the future and to creatively resolve our difficult situations. Instead of looking back at these dilemmas and agonizing over the results, I’ve learned to apply the many lessons I’ve learned to my present-day business. As entrepreneurs, we’re going to be faced with difficult legal decisions— they are just a part of what we do. The important thing is to embrace those experiences, learn from them and move on to the better parts of life.

Stay Connected

Fill out the contact information below to receive EO's newsletter.