Imagine you’ve spent months building a client relationship in Michigan. You are on the verge of closing the deal. Then, out of nowhere, a competitor contacts your client and convinces them to walk away. As a result, you lose the deal and the revenue. Business owners usually refer to this scenario as tortious interference and it can happen to any Michigan startup.
What is tortious interference?
Tortious interference occurs when a third party intentionally and improperly disrupts your existing contract or business relationship, causing you financial harm. The interference can often come from someone close to your operations or from a complete outsider looking to gain an advantage, such as:
- Business competitors
- Advisors
- Consultants
- Suppliers and vendors
- Disgruntled ex-employees
Any one of these parties can put your contracts and business relationships at risk. Additionally, knowing who might interfere sets the foundation for understanding the two main ways interference can actually happen.
Two types of interference to watch out for
Now that you know who might interfere, it’s just as important to recognize how it happens. There are two main types of tortious interference to be aware of:
- Interference with a contract: A third party persuades someone to break a valid, existing agreement, such as poaching a client who has an exclusivity agreement with you.
- Interference with a business relationship: A third party disrupts an expected deal even without a formal contract, such as blocking an anticipated merger or a handshake agreement.
Both types can set your business back significantly. Thus, understanding how interference happens puts you in a better position to take legal action when it does.
Four critical elements you must prove
If a third party has disrupted your business, you will need to establish four key elements to move forward with a legal claim. Here is what you need to prove:
- Existence of a contract or business relationship: A valid contract or concrete business expectancy existed between you and another party.
- Knowledge of the third-party: The interfering party knew about your contract or business relationship.
- Intent to cause harm: The third party acted intentionally and improperly, not by accident.
- Damages to your business: The interference directly caused you measurable financial loss.
Meeting all four of these elements can make a significant difference in how well you protect your business down the line.
Don’t let a third-party ruin your business relationships
Like all relationships, your business can fall prey to malicious third parties. This is why taking early precautions, such as drafting clear contracts, setting up confidentiality agreements and carefully documenting your business relationships and transactions, can go a long way in protecting your business. With the right guidance in your corner, you can build a stronger foundation and focus on growing your Michigan startup.