Of the myriad problems a jewelry business may encounter, those involving legal challenges and risks will require consultation with an attorney. In fact, jewelers intent on safeguarding their business often keep a law firm on retainer to help them deal with various complex issues such as lease agreements, insurance claims, disputes with vendors, data breaches, employment violations, Federal Trade Commission rules, and more.

The good news is that well-drafted contracts and up-to-date regulatory documents automatically inoculate jewelers from potentially tricky legal situations. If you don’t have this type of paperwork in place, you now have a good reason to find a lawyer to guide you through the process.

“There is a tremendous amount of value that you can generate for yourself by getting that kind of counsel up front,” says Noah Ornstein, CEO of Jayaram Law, a firm with offices in New York City and Miami that specializes in representing the interests of creatives and tech innovators.

Once you determine what your opportunities and vulnerabilities are, Ornstein says, you can use that knowledge strategically—to benefit and grow your business while also heading off problems before they occur.

If all your planning and prep work fail, and a dispute escalates, it may be reassuring to know that not every legal entanglement ends up playing out in a courtroom (although it’s been known to happen). Many go through a legally binding process known as arbitration, which can be used to resolve disputes over contracts, customer payment, or intellectual property and “is often more efficient, less expensive, and avoids publicity,” says Brian Farkas, a litigator at ArentFox Schiff, a national law firm that employs 700 attorneys across the United States. The arbitration process also ensures your case is presided over by someone familiar with the nuances of the jewelry industry.

Below, we provide an overview of the unknowns, what-ifs, and other scenarios that could land a jeweler in hot water.

Contracts & Consignment

While jewelry industry transactions frequently are conducted through handshake agreements, such informal contracts can increase the likelihood of disputes. Even if a written purchase order or agreement accompanies the deal, these documents often fail to “memorialize the specifics of the transaction” particularly when it comes to collections and breach of contract litigation, notes Timothy Wan, senior partner and CEO of Smith Carroad Wan & Parikh P.C., a Long Island–based firm that represents small retailers.

The firm, which counts the Jewelers Board of Trade as a longtime client, has represented companies across the jewelry supply chain. Most contract disputes, Wan reports, stem from imprecise agreements that do not itemize the merchandise properly or gloss over the quantity and quality of the product (for example, by forgoing details such as diamond color and clarity grades).

“We are currently handling over 3,000 of these types of cases in our office,” says Wan, adding that it’s common for retailers to buy merchandise with vague descriptions—such as a line item labeled “Lot A”—only to discover upon arrival that the goods don’t match their expectations. Whether the materials are valued at $500 or $5,000, if you don’t have a contract that spells out the specifics, “you’re opening yourself to that risk of litigation,” Wan says.

The solution? Hire an attorney to create a templated, reusable contract for purchase orders and consignment memos, which would likely incur a one-time fee. It’s a small price to pay, Wan says, because once that contract is finalized, “what does it cost you to write out the grade of diamond, ruby, or emerald and the expected quantities? It takes five minutes to write everything out so you have that precision.”

Operating Agreements

What is an operating agreement and why is a jeweler’s need for one so great? These documents serve as a rule book for how any business, be it a limited liability company (LLC) or a corporation, is structured and managed. An operating agreement between two jewelry business partners, for example, should include a clear delineation of roles and responsibilities. It should also define who holds decision-making authority (and in what situations) as well as how profits will be distributed. That’s at a minimum.

But without an operating agreement that addresses potential scenarios—such as a partner who seeks to exit the business while retaining ownership of designs, trademarks, or a share of inventory—the financial consequences can be emotionally and financially devastating.

“Unfortunately, right now, I’ve got seven cases where there was no operating agreement or shareholder agreement, or anything of that kind. One of these clients has spent over 20 grand on me fighting with their ex-partner.”

A good operating agreement also provides contingencies, should one of the partners become incapacitated or pass away. “If your business partner dies, you’re immediately now business partners with whoever their heir is, whether it’s their spouse or their children,” Wan says. To help prevent these potentially disastrous scenarios, consider building a buy-sell arrangement or a succession plan into your operating agreement. Doing so will ensure the store’s continuity and protect the interests of shareholders, employees, and anyone else who depends on its ongoing success.

Employment

The intricacies of employment law can pose unique challenges to jewelers. “Every year, there are seemingly more regulations related to employment,” says Farkas, who teaches courses on alternative dispute resolution at Brooklyn Law School and the Cardozo School of Law, both in New York City. “Many of them are incredibly complicated, from wage and hour laws to providing or not providing benefits to employees, and there’s so much specificity, depending on where the employer is located.”

Common disputes could involve former employees alleging they were underpaid and seeking back pay or claiming they were a victim of discrimination or wrongful termination. A lawyer experienced in employment law can help you establish and maintain well-drafted, up-to-date agreements and contracts with part-time and full-time employees, business partners, and third-party vendors, ensuring you’re better protected if claims arise.

And don’t overlook the importance of noncompete and nonsolicitation agreements, Wan advises. “What’s going to stop that manager from jumping ship to your competitor down the street and taking all your contacts and clients with them? What’s going to stop them from sharing information with your competitor or stealing your best customer or supplier? If you did not have them sign some kind of nondisclosure or noncompete agreement, nothing stops them from doing that.”

Intellectual Property

Public awareness of intellectual property issues has grown significantly in recent years, likely fueled by high-profile cases such as Taylor Swift’s battle with music manager Scooter Braun over ownership of her early masters as well as the rise of “dupe culture” in the broader cultural zeitgeist. The result has been an “uptick in people understanding what their rights are and then taking actions to protect those rights,” Ornstein says.

Many legal experts recommend that you take precautions from the get-go—such as filing for a copyright or trademark to protect a signature design or setting style that is unique to your jewelry business. But if you haven’t done so? “Once original authorship is put to recorded form, you have rights based on the way that the law looks to protect those who create,” Ornstein says.

A good attorney, ideally one familiar with intellectual property law, can help you identify potential—and realistic—pathways to resolution given the specifics of your case. For example, a cease-and-desist letter is often the first step and, according to Ornstein, can be very effective in terms of compelling the party accused of infringement to stop the behavior or at least “enter into conversation to resolve the matter.”

Bankruptcy

It’s fair to say that most jewelry store owners would not attempt to navigate a bankruptcy filing, be it Chapter 11 or otherwise, on their own. If contemplating such a decision, you’d be smart to initially phone the lawyer who represents you in everyday business matters. Just be aware that bankruptcy legal proceedings are governed by a highly detailed—and complex—framework of federal laws and regulations.

“Bankruptcy has its own courts, its own legal structure, its own judges, and its own procedural codes,” Farkas says. “So you would want an attorney with a hyper-specific level of experience in that niche.” Consider the analogy of having a general practitioner who can handle most of your health issues but would refer you to a trusted specialist when a concern requires more focused expertise. Similarly, your outside general counsel should be able to refer you to someone who specializes in bankruptcy law; barring that, explore your representation options by researching top-rated attorneys that list “Bankruptcy and Creditors’ Rights” or “Insolvency and Restructuring” as practice areas.

Libel & Defamation

If you try to sue a customer who leaves a negative review on Yelp or Google, you’re looking at an uphill legal battle. “It is important to remember that we have a pretty robust First Amendment in this country,” Farkas says. But, he adds, there is a line between customers who express their honest negative opinions about a business and ones who post personal false attacks that are “demonstrably untrue, or that defame the integrity of the business, or accuse it of fraud.” In that case, “you might have an argument for a defamation claim, or at least the threat of a defamation-type claim.”

The same is true of a rival business that spreads false, damaging information about your store. Even so, “a jeweler should resist the urge to automatically respond publicly in kind, because online and digital conversations take on a life of their own,” Ornstein cautions. “What might feel like protecting yourself might itself defame someone else, depending on what you have said.” Always act through the lens of what’s in the best interest of your business, how you want it to be perceived in the marketplace, and the audience you are trying to convert. In most cases, Ornstein says, your actions “should look to calm the situation.”

(All photos: Getty Images)