10 important legal documents for small businesses
Having the correct legal documents in place is important. Whether it's resolving a dispute with an employee, handling client data or entering into a contract with a service provider, you must make sure your business is covered if something unexpected happens.
We paired up with legal tech business Farillio to compile a list of some of the most important legal documents used by small businesses. Read on to find out what they are and why you need them.
1. Contract for selling services to another business
"Did you know?
The four key checks when signing contracts:
- Use correct company/individual names
- Ensure it's signed by those authorised to
- Sign in writing wherever possible
- Ensure best practice if signing virtually” - Farillio
What is it?
This document sets out basic agreements to allow one business to sell their services to another business.
Why is it important?
It contains important protections for the seller - in particular, payment terms, what services are being sold, when the seller can terminate the agreement or protections if things should go wrong.
What happens if you don't have this document in place?
Without an agreement, the buyer of the seller's services can refuse to pay or delay payment. The seller will then have difficulty proving the buyer agreed to pay for the services. If the seller has valuable intellectual property (IP) in the services, or reveals confidential information to the buyer, this agreement protects the IP and confidential information. The agreement also places a cap on what the buyer can sue for in case of breach of contract or if things go wrong with the services (referred to as limitation of liability). This is a valuable protection for the seller.
2. Contract for services: freelance services (via a consultancy company) client-friendly contract
"Did you know?
HMRC, penalises freelance/contractor trading relationships that should technically be employer-employee ones, so it's vital your contract & process shows an arms-length distance between both parties” - Farillio
What is it?
This contract is suitable for freelancers, contractors and consultants who are contracting out their services via their own limited company.
Why is it important?
This agreement is important because it provides the details of the relationship with the particular service supplier and what's expected from both parties. It makes sure that freelancers get paid on time and in full for their work, and that the company receives all the services promised by the individual.
What happens if you don't have this document in place?
- If this agreement is not in place, disputes may arise between parties, e.g. about the scope of the deliverables, what was promised by the freelancer and what should be delivered.
- Without an agreement, it is unclear what the payment rate is, and this will create a lack of certainty within both parties.
- For the company, they will want to protect confidentiality so that the freelancer does not share confidential information with competitors. Or, in certain circumstances, the company will want to ensure they own the deliverables/work/product especially if the freelancer creates something that has intellectual property.
- The company will want to ensure the freelancer is not mistaken for an employee or claims employee rights.
3. Standard confidentiality agreement (NDA)
"Did you know?
NDAs aren't a replacement for a contract. They generally belong earlier on in business relationships, during the exploration of an opportunity that might later transform into a contractual arrangement” - Farillio
What is it?
An NDA's purpose is to protect confidential information owned by one or both parties, to the agreement with the people involved who are signatories. The agreement being that their confidential information will not be disclosed or made publicly known.
Why is it important?
A non-disclosure agreement (or NDA) is a legally binding document designed to stop a business' sensitive, confidential information and data from being shared amongst people who aren't authorised to have access to it. You'll often hear it called a 'confidentiality agreement' as well.
What happens if you don't have this document in place?
The risk is that confidential information becomes available publicly, which could embarrass or impact a party negatively. Either through loss of revenue, loss of customers or loss of valuable intellectual property.
4. COVID-19 Risk Assessment Template
What is it?
A COVID-19 risk assessment template identifies the potential risks and necessary control measures required in order to prevent the spread of COVID-19 within the workplace. It offers guidance to employers who are responsible to protect their employees from health & safety risks.
Why is it important?
With COVID-19 and the ever-so-changing social distancing rules, it is important to keep up-to-date documentation compliant with the latest laws and regulations.
You should use it to help your business' contractors, employees, guests and visitors remain compliant with the government guidelines around cleaning, hand washing and social distancing.
5. Redundancy Templates
Redundancy is a one-way process when an employer decides to terminate an employee's contract with them. It describes the situation where an employer decides they need to reduce their employee numbers, and one or more members of staff's employment contracts have to be ended.
Why is it important to have redundancy templates in place?
There are legal obligations on the employer to run a fair process and it's important that they follow the processes set out by law.
Employees will be entitled to certain information about the process, and should have an opportunity to ask questions. Some may also be entitled to redundancy payments.
What issues can arise if you don't have the correct documents?
If an employer does not follow the processes set out by law correctly, an employee could lodge a claim for unfair dismissal in an employment tribunal. This becomes expensive if there are a number of employees being made redundant and court litigation is not cheap or quick.
Doing this badly or incorrectly could affect the employer's reputation and ability to hire new talent in the future.
6. Data Protection Policy
"Did you know?
While your privacy notice is an external document, your data protection policy is an inward-facing document. While some data controllers may ask a data processor to share this doc - that's at your discretion” - Farillio
What is it?
This policy informs everyone who works for the particular business on how the business will handle their personal data. Although it's not obligatory to have a policy under data protection laws, it's recommended that the business has one in place to act as a point of reference for those that work for you. And it helps to demonstrate compliance with data protection laws.
Why is it important?
Under the GDPR rules, it's important that businesses who handle any type of client/customer/staff or supplier personal data conduct a review of their internal procedures and policies to ensure that they remain GDPR compliant. It's strongly advised to have an up-to-date data protection policy to make sure that businesses maintain GDPR rules and guidelines. It's also recommended by the Regulator.
What happens if you don't have this document in place?
By not having a data protection policy in place, companies risk violating strict GDPR rules and guidelines which might cause serious financial penalties for the businesses found to be in violation.
Customers and employees want assurance that the company takes these issues seriously. They want confidence that their personal data will be looked after. Breaches can be very damaging to the company's reputation and fines can be high.
7. Flexible Working Policy
What is it?
Flexible working might involve reducing or varying hours, the days that people work, or changing their work location. To make the process straightforward, businesses should have a flexible working policy in place for their employees.
Why is it important?
- It's recommended that businesses do not give it contractual status in any employment contract that they put in place, but that they do reference it in the contract to make it clear that the employee is expected to comply with the policy. And that the business has the right to update or revise, in their discretion as and when they want to.
- Having a flexible working policy is also very attractive to certain employees. Some employees even choose to work for companies that have this policy.
- It also helps to administer what the company is willing to offer its employees, especially parents or carers, who may wish to have flexible working arrangements.
What happens if you don't have this document in place?
With a policy, everyone is clear about what to expect. It can be confusing if no policy is put in place and the company makes it up 'on the fly'. It becomes a risk if the company treats employees differently and especially if it discriminates between types of employees; i.e. one group get treated more favourably than others.
8. General Trading Privacy Notice
What is it?
This is a general privacy notice and it's compliant with the new UK data protection laws (the General Data Protection Regulation - the GDPR) in force from 25 May 2018. This notice tells individuals (who companies may do business with, or interact with in a business environment) about how they collect, handle, store and potentially also share, their personal data. As well as the rights that they have in relation to the company's activities, under the UK's data protection law.
"Did you know?
If you change how/why you use personal info, you may need to issue new privacy notices or even request consent to allow those changes - so it's best to be comprehensive up front” - Farillio
Why is it important?
The notice makes sure that you're as transparent as possible with individuals. It also gives people additional control over the way their data is collected and handled. This notice prevents any confusion about the way personal data is being used, and it builds a level of trust between the organisation and the individual.
What happens if you don't have this document in place?
- It means your organisation is not complying with the law and could mean customer complaints or fines from the Regulator.
- It's a way of making sure your company gives people confidence and builds trust with personal data, which everyone cares about.
9. Mental health and wellbeing policy
What is it?
Ideally, every business should have a mental health and wellbeing policy in place. It is increasingly becoming expected, by staff and by the health and safety regulators, that employers will put this policy in place to support the increasing number of employees who report suffering from work-related stress and poor mental health each year.
The policy also makes it clear that every employee will be held accountable for protecting the confidentiality of this data and for following the steps included in this regulation.
Why is it important?
Employers have a legal obligation to make sure that, as they follow through with their contracted duties at work, employees do not suffer excessive work-related demands or pressures. Or other treatment that puts their mental (or physical) health at risk.
What happens if you don't have this document in place?
By not having this policy in place, employers risk violating UK's data protection rules. Information about mental health and stress is very delicate and falls within the special categories of data under the UK's data protection regulations.
Employers could also be exposed to very serious risk from potential employee claims alleging injury at the workplace. The reason being poor working conditions that result in excessive stress and poor mental health.
10. Casual Worker Contract
What is it?
This is a contract for the engagement of a casual worker, such as workers who the business might engage to seek additional help, for example within a seasonal sales period or with particular (typically non-specialist) tasks and projects. Sometimes it is also known as a zero-hours contract.
Why is it important to have this document in place?
- By using a casual worker contract, businesses gain greater flexibility that gives any company more agility and a higher competitive advantage to be able to respond timely and effectively to the ever-changing operational environment.
- It protects the company from the casual worker claiming employee status.
What issues can arise if you don't have this document in place?
- HMRC will want proof that the casual workers were not employees.
- Companies want to ensure they can terminate the arrangement and avoid any risk that the casual worker claims any employment rights or entitlements.
Helping businesses stay prepared
As part of Legal Essentials, which comes as standard with Direct Line Business Insurance, customers can access a free legal documents service. You'll be able to explore a library of legal documents and templates, including all the documents mentioned in this article, tailor them and use them for your business.
Learn more about Legal Essentials here
Document services and legal advice helpline are provided by DAS Legal Expenses Insurance Ltd. 24/7 helpline England and Wales only; advice in other jurisdictions is available 9am-5pm Monday-Friday, excluding bank holidays.
Disclaimer: This information is for general guidance regarding rights and responsibilities and is not formal legal advice as no lawyer-client relationship has been created