Small Firms and Their Difficulties with Contractual Relationships: Implications for Legal Policy

Abstract

This paper is based on interviews with and documents supplied by the owners, directors and managers of 40 small businesses in the UK. It analyses the contractual arrangements made for business purposes, investigates the firms' experiences of litigation and attempts to classify the legal problems faced by small firms in their contractual relationships.

The firms' legal problems were more in the area of private business relations than public administration and many of the actions arising out of contractual relations were statutory rather than contractual. The most common type of problem related to firms' inadequate response to the legal environment rather than to deficiencies in the law or legal system. There was only a limited professional legal input into contract formation although the use of standard terms was widespread. There were doubts on the part of some of the firms about whether the contractual framework they had adopted offered sufficient legal protection.

It is submitted that it is right that small firms should not be excluded from legal duties placed upon employers more generally but the conclusion here is that they are badly placed to fulfil these duties because of a difficulty in gaining access to legal resources. The main implication for legal policy is that small firms may require a publicly-subsidized legal service if they are to conduct their contractual relationships lawfully, particularly as these relationships come to be regulated increasingly by statute. It is noted that some steps consistent with such an approach are being considered by the government in relation to employment law.