Legal risks facing medium-sized companies

Are you facing litigation with a customer, employee or supplier? Do you wish to contest a decision made by the authorities or resolve a dispute with the contractor who built your premises? As social and tax regulation become increasingly complex, legal risks are constantly on the rise. Changes to legislation and regulation represent the fourth most significant risk facing companies, according to the 2,415 experts involved in the 2019 Allianz Risk Barometer. Indeed, 27% of people in business are worried about this threat.

Medium-sized companies do not all face the same level of risk in this area. The risks of administrative disputes and litigation with suppliers apply across the board, while certain companies, especially those operating in transport and distribution, are more exposed than others to employee-related risks.

The pandemic and the subsequent economic crisis highlighted the need for a certain level of legal protection against any potential proceedings.

The number of employee disputes could be on the rise

That is why it is important medium-sized companies take a proactive approach to prove they are complying with the health and hygiene requirements in force, for example by spacing out desks and workstations appropriately as well as providing masks and hand sanitiser...

When financial difficulties force a company to lay off some of its employees, it is very much in the interest of executives to call on the support of a specialist to ensure all legally required procedures are followed correctly. For example, when a company makes a group of employees redundant in order to cut costs, they need to prove that their business has been affected by the economic crisis and they cannot redeploy the employees elsewhere in the company.

Administrative risks should not be overlooked

« Medium-sized companies are particularly exposed to tax risk », explique Jean-Raymond Chandebois Darras. « Companies with revenue of €10 million and over are subject to one audit by tax or social authorities every three years on average. Audits are carried out on smaller companies at least three times more often. »

To avoid any penalties, medium-sized companies need to work with a chartered accountant who understands this kind of structure. When you undergo a tax audit, it is important to be well supported by specialists. Fees of up to €3,500 for an accountant and the same amount for a tax lawyer are covered by certain insurance policies, such as the MMA legal protection insurance for business customers.⁽¹⁾

Managing litigation with suppliers

There are a multitude of potential sources of litigation with suppliers, including machinery and equipment breakdowns, IT network operating below capacity, defective corporate vehicles and out of order printers. To resolve these disputes, medium-sized companies often need to rely on experts. While mediation costs may vary between €500 and €1,500, expert witness services generally cost on average €6,000 in excess fees. Policies such as legal protection insurance for business customers can serve to cover such expenses. 

The best protection is prevention

When disputes are inevitable, medium-sized companies can make use of their legal protection insurance to cover the fees paid to their company lawyer or another legal expert if the problem concerns a specialist matter, such as commercial lease agreements.

Other forms of litigation exist

Other problems can also lead to litigation. Errors and omissions – including walls that are solidly built but not straight, a ceiling that changes colour three months after being painted, or a heating system that does not meet expected performance standards – are not covered by the 10-year construction liability insurance and can often lead to proceedings in court. Certain cases can take a considerable amount of time to be resolved, leading to long waits that can disrupt operations for a medium-sized company, especially when defects prevent employees from working in good conditions.

Certain legal protection policies cover other risks including expenses incurred through disputes with neighbours, when a factory makes too much noise for example, or an attack against a company’s online reputation.

(1) Legal protection policies are insured and managed by Covéa Protection Juridique.