Businesses and individuals contract or employ other professionals to provide guidance. They use their services to assist in business growth, create and implement day-to-day operations, navigate competition and overcome the unfortunate occurrence of disputes.
Professional advice has a number of typical sources. It may come from internal personnel or from external individuals or organisations. There’s also the regular reliance on ‘Doctor Google’. In any case, you want to ensure that the advice you are provided with is fit for purpose, and is exercised with skill.
When organisations go outside for professional advice and services, it is naturally expected that the professional will exercise a high standard of care and skill in providing its services. If the hired party does not exercise reasonable skill, in some unfortunate circumstances the advice may lead to financial loss and create emotional or physical distress. In the very worst of cases, it may even lead to bankruptcy or liquidation.
In legal terms, when professional advice fails to meet a reasonable standard of care, it is often referred to as negligent advice.
Case in point
Recently, we had a client who came to us after receiving negligent advice. For the purposes of this article, we call the fictitious organisations Zed Shoe Company (Zed)(our client), and the other Beta HR Consultants (BHR).
Zed company was expecting to win a big project, and in anticipation of winning such project, it recognised the need to restructure and expand its business model. This would necessitate the hiring of staff, and it decided to seek assistance from what it believed to be a reputable HR company (BHR).
Zed engaged BHR to assist with the development and implementation of new employment agreements, develop a suite of HR policies, and provide HR advice. BHR provided a number of employment agreements, which Zed delivered to its existing employees as well as to new employees.
Unfortunately, Zed did not win the project and consequently had no choice but to terminate seven employees. It did so, purportedly in accordance with the termination and redundancy provisions “required” by the employment agreements. Unfortunately, the terms contained in the employment contracts were wrong in that they failed to properly take into account award conditions.
Not surprisingly, the terminated employees initiated unfair dismissal claims in the Fair Work Commission. In total, Zed was subject to claims in excess of $90,000.
Consequently, Zed engaged Sajen Legal to assist in recovering its losses from BHR. BHR argued that it was not liable to make good on the losses as its contract expressly said the advice and services it provided were not legal advice and, as such, could not be relied upon.
Is this fair and reasonable?
Absolutely not. In general terms, a duty of care arises by reason of undertaking to provide particular goods or services. Zed contracted with BHR for BHR to provide its service and practical consultancy solutions for the employment and payroll administration of Zed’s employees. Zed contracted with BHR to provide its services for a reward. BHR provided Zed with employment agreements that ought to have met Zed’s requirements and ought to have, as specifically requested, contained the terms required to properly exclude the applicable award. Importantly, BHR knew, or at least ought have, that Zed would be relying on its advice and services.
The fact that BHR attempted to limit its liability by including provisions in its contract that its advice should not be deemed as legal advice does not excuse BHR from failing to exercise a reasonable standard of care. By providing employment agreements that were not fit for purpose, the employment consultant did not meet the requisite standard of care, and this was directly causative of Zed’s losses. The question of whether or not those services were legal in nature does not have any bearing on the duty, or standard, of care.
How could this have been avoided?
We understand that people often avoid using lawyers because they worry about the perceived cost. But choosing not to get legal advice often ends up being far more costly in the long run. Isn’t it better to get things right the first time around? It isn’t only the financial burden of not obtaining proper legal advice, it is also the time and effort that must be put in to try and ‘right the worng’. You may consider the route of an HR consultant initially due to the cost of services, but what is the real cost when the advice you receive is just plain wrong?
Obtaining legal advice not only serves to minimise the chance of potential damages claims, it is essential for the growth (or downsize) of your business. The legal profession offers a higher standard of care and protection than many of the pretenders. Indeed, lawyers are bound by statute to place your interests before their own. Very few other ‘professionals’ carry that responsibility when delivering their services.
Take care in picking who to provide advice to you
It is not our job to tell you how to run your business – this is what you are good at. Take your time to pick a qualified legal advisor and do your research. Find out who gets good results and who will listen to you and work with you to achieve the best results for your business. Good legal advice will help you avoid the issues and pitfalls. Choosing wisely will be the best investment you will make for your business, and the expert advice will help your business grow, and help manage your employees and employment issues.