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You’ve built your business from the ground up — perfected your services, gained a loyal client base, and established a solid reputation. But have you protected yourself legally?
Many freelancers and small business owners mayknow they need strong contracts and legal protections, but allow protecting their business to stick to the bottom of their to-do list. After all, legal issues are for large companies, right?
The reality is that business owners in every industry(no matter the size) can face unexpected challenges, accidents, or even lawsuits. If your contracts don’t include critical clauses to limit your liabilities, you could be in financial and legal trouble.
What exactly does limiting your liabilities mean? In simple terms, it means making sure that if a claim is made against you, the amount of money you could owe is limited or capped. The best way to limit your liabilities is to have a Limit of Liability Clause in your contracts.
What does that look like in action? We will share a few stories of why liability limitation clauses are essential for your business, and how this can play out in your own life and business.
Imagine this: You’re a wedding photographer, and the biggest day of your client’s life is going smoothly — until you are backing up - trying to align your shot just-so - and you back right into a vase of flowers. The vase goes flying and shatters completely. Worse, the water from the vase seeps into the antique hardwood floors of the venue. The venue owner is furious, and now you’re being held responsible for thousands of dollars in repairs.
A properly drafted Maximum Damages clause could have saved this photographer from financial disaster. This clause limits the client’s ability to claim excessive damages, capping their compensation at a reasonable amount.
For example, a typical limit of liability clause might state that damages cannot exceed the total amount paid for the photography services. In the case of a $2,000 photography contract, the most the photographer would owe — if at fault — would be $2,000, not the tens of thousands of damages for the venue.
A Waiver of Liability clause is another protection the photographer could include in their contracts. This clause might stipulate that the photographer is not responsible for damages outside of their control or that result from accidents. While not every client will accept a full waiver, partial liability limitations can still make a huge difference in protecting your business.
It’s every business owner’s worst fear: completing a project, sending in your invoice, and waiting — only for the client to ghost you or refuse to pay. But what if, on top of not being paid, the client turns around and sues you, claiming that your work caused them financial harm?
Such is the case with our friend, the Web Designer. After completing a website for a new client, the designer sent an invoice over for the final payment. But instead of paying, the client claimed that the website’s designhurt their business, drove away customers, and caused them to lose revenue. The client then sued the designer for damages far exceeding the cost of the website ($5,000), claiming losses upwards of $50,000.
If this designer had had a Limit of Liability clause in their contract, it would have capped the client’s ability to sue for exorbitant damages and limited their claims to the amount paid for the developer’s services. In this case, the client wouldn’t have been able to sue for more than the $5,000 project cost, saving the freelancer from a massive legal battle.
An additional protection in their contract could have been an Indemnification clause. This would have ensured that the client cannot hold the designer accountable for issues that arise after the project is completed, such as poor business decisions or internal mismanagement. With this clause, the client can’t blame the designer for losses that are not directly tied to the developer’s services.
Business coaches, life coaches, personal trainers … they all work closely with their clients on a multitude of levels. While the relationship can be productive and transformative, it can also become problematic if a client isn’t satisfied with the results — or worse, claims harm.
One wellness coach faced such a situation when a client sued her for emotional distress after an intensive, in-person coaching retreat. The client claimed the techniques used in the retreat led to psychological harm and demanded significant compensation for medical costs and emotional suffering.
Had this coach had an Indemnification clause in the retreat’s contract, things would have turned out differently. Unfortunately, this critical omission left her vulnerable to claims of emotional or physical harm, despite the fact that the retreat was conducted in good faith. If the contract had an Indemnification clause, the client would have been unable to claim damages for the alleged harm.
Another critical issue was that the coach failed to have clients sign a Waiver of Liability for the in-person aspect of the retreat. When offering any kind of in-person service (whether it’s a business retreat or personal training session), having clients sign a waiver is crucial. This clause ensures that clients understand and accept the inherent risks of participating in activities or services that could potentially cause harm.
Anyone in the photography or videography industry has probably had a nightmare similar to this scenario. A videographer was hired to capture an important high-profile corporate event. However, when they sat down to review the footage, they discovered that due to a technical error, part of the footage was corrupted and unrecoverable—a very important part — the CEO’s main speech.
The CEO was angry and disappointed and threatened to sue for damages — claiming that the lost footage resulted in missed marketing opportunities and financial harm to their business.
This videographer’s contract clearly didn’t include a Force Majeure clause, which covers unexpected events outside of a party’s control. This clause would have protected him from being held liable for issues beyond his control — such as technical failures or unforeseen circumstances. Without this clause, the client has grounds to sue for the perceived losses, even though the videographer didn’t intentionally cause the problem.
A Limit of Liability clause could also have helped mitigate the damage, as it would have capped the videographer’s liability at the total cost of the project — protecting him from the client’s exaggerated claims of lost revenue.
Running a business comes with inherent risks, but many of them are manageable if you take the time to protect yourself legally. By putting the proper limits in place, you’re taking steps to ensure your business’s financial stability, reducing the potential for disastrous legal problems, and giving yourself peace of mind that you’re protected against worst-case scenarios.
A great starting place is to ensure that you have a Limit of Liability clause in all of your contracts in order to keep any potential cost of damages down. However, you should also consider adding in the following clauses:
Indemnification Clause
Force Majeure Clause
Waiver of Liability Clause
Maximum Damages Clause
If you aren’t sure where to start, using a professionally crafted contract template from The Contract Shop® can give you peace of mind — these templates are created specifically for small businesses and freelancers, ensuring that you’re covered in case the unexpected happens.
And if you want to make sure your legal bases are covered from the ground up, snag our free No-Nonsense Checklist to Starting a Business. Even if your business is firmly established, this checklist will make sure that ALL of your legal bases are covered so that you can sleep soundly at night knowing you don’t have to worry about any of the above scenarios.
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