Business Risks For Agencies: These Are The Threats You Should Be Aware Of

How Does Liability Arise?

In principle, the following applies: If customers suffer damage due to a professional error on your part, you are liable for this. This is the case, for example, if clients receive a written warning because of you or have to pay compensation. Also, if your customers have to revise a website, for example, at additional (financial) expense following an omission on the part of your agency, they can reclaim the amount invested from you. Regardless of whether you run a digital agency, a graphics agency, a communications agency or a marketing agency, you should always bear this in mind: There are many other ways to fall into the liability trap:

• Careless mistakes such as transposed figures or typos
• Infringement of trademark rights and copyrights
• Failed campaigns and projects
• Incorrect or incomplete legal texts (privacy policy/imprint/generel terms an conditions)
• Neglect of information obligations
• Data protection violations
• Breaches of competition law
• Property damage and personal injury

This list already raises initial questions: Where do your responsibilities in an agency begin and end so that you do not make yourself liable? What is the scope of liability? The answer is: It depends...

Liability: A Question Of Contract

The scope of your liability is primarily determined by the contract you have concluded with your customer. Depending on this, there are different legal consequences with regard to warranty, cancellation, etc.

Service Contratc

In the case of a service contract, for example, you do not owe a specific result, but the focus is on your work itself, which must be performed with the appropriate care and expertise and in accordance with the agreed standards. If you as the service provider do not fulfil these obligations or the service is defective, this leads to liability.

Typical examples of a service contract are the ongoing SEO optimisation of a website, media planning or the management of social media campaigns.

Work Contract

In contrast to a service contract, with a work contract you owe a specific success or a specific result, for example a functioning website or web shop. For this reason, a work contract typically contains detailed information on the technical specifications, standards and requirements that the work must fulfil (often described in a functional and performance specification). The completion period and acceptance conditions are also specified. This helps to clarify the expectations of both parties. However, if the result of your work does not fulfil the agreements, the client is obliged to report a defect and set a deadline by which you can rectify it. If you do not comply with this request, customers can refuse to accept the work. If the defect cannot be rectified, they can reduce the payment, withdraw from the contract or demand compensation.

However, if the work is duly accepted, it is deemed to be free of defects and you are entitled to the agreed remuneration or the final payment (exception: the defects were not noticeable at the time of acceptance or only became apparent afterwards). You should therefore record the acceptance and have this record signed by your client. This will provide you with written proof that the work you have produced complies with the contract.

Risk #1: Infringement Of Rights

They are probably the most common reason for written warnings and claims for compensation. The possibilities for committing offences in this area are numerous, as law is divided into various areas in which you and your agency can make mistakes.

Copyright

Copyright law applies to content in any form. You may not simply use images, videos, text, sound, but also codes and programming, but require the written (!) permission of the rights holder. This authorisation should specify exactly what you are allowed to use the content for. Databases such as Unsplash, Pixabay or Shutterstock are a great help here - they clearly define the intended use of content in their terms of use.

Copyright law also applies to the use of new technologies such as artificial intelligence. If you generate texts with ChatGPT, for example, you should always ensure the accuracy and uniqueness of the results. Plagiarism checking tools such as PlagAware can help you with this.

If you nevertheless use illegal third-party content to populate a client's website with content, your customers are threatened with a written warning and expensive compensation. They can claim these costs back from you - because as an expert, it is up to you to set up a legally secure website. Therefore, it is essential that you are aware of this responsibility.

Competition Law

For many marketing agencies, creating advertising campaigns is part of their day-to-day business. However, this service in particular entails many risks under competition law. The rules of competition law are designed to ensure undistorted, fair competition between different market participants and protect consumers from unfair practices. The regulations in this area are numerous, but it is still your responsibility to point out competition offences to clients. If you fail to do so and your customers suffer damage as a result of this omission, you may be held liable.

The topic of competition law extends to many different fields of activity. Other typical examples of an offence are:

• Misleading advertising
• False advertising labelling
• Incorrect price information
• Missing mandatory information

At exali, we deal with damage events relating to competition law time and again, for example this one: Watch Out for Written Warnings: 10,000 Euros for Errors in Advertising.

Trademark Law

When creating the new logo for your customers, did you, as the operator of a design or graphics agency, take a little inspiration from another major brand? Be careful! Because if your own design is too similar to a protected trade mark, there is a high risk of a written warning. This applies, for example, if you use a similar name or if design elements are modelled too closely on the original. Third-party logos or seals of approval also have no place in your work. To minimise the risk of trademark infringement from the outset, you should always carry out a detailed trademark search before you create your design.

Personal Rights

If you create images and videos for your customers as part of your agency activities, you are obliged to comply with personal rights. This right extends to the people who appear in your images and videos. If they are clearly recognisable in this content without having consented to it, you are committing a violation of personal rights. We therefore recommend that if you are shooting an advertising film for your client, for example, all those involved should give their written consent so that your customers can use the material without hesitation.

Risk #2: Careless Mistakes

In the stressful everyday life of an agency, you have to keep an eye on many things at the same time. All it takes is a little carelessness and you are faced with horrendous claims for compensation. Here we present some real damage events that illustrate this well.

Overpriced Advertising Campaign

While managing an ads campaign, an employee of an advertising agency made a change to the budget. In doing so, he made a fatal decimal point error, resulting in a multiple of the original budget being spent. Find out how this unusual case turned out here: Comma Error Causes Overpriced Advertising Campaign - a Real Damage Event.

Incorrectly Ticked Box Causes 15,000 Euros In Damage

In another case, an agency inadvertently paused the wrong advertising campaign, depriving its client of a lot of revenue. The reason for this? An employee had incorrectly ticked a box in Google Ads and thus prematurely paused the important campaign. You can read the whole case in the article Google Ads Error: 15,000 Euros in Damages for a Misplaced Check Mark.

Pitfall Domain Registration

When you create a website with your web agency as part of a project, this often includes the right domain. However, getting there is not that easy. The following damage event shows that such a project can quickly become very expensive if something goes wrong: Incorrect Domain Registration Causes 6.000 Euros in Damage.

Typos

Typos are particularly embarrassing and annoying. For communication or advertising agencies, this scenario can become relevant when creating print advertising material. A writing error is particularly annoying here, as it can only be corrected at high additional cost. These damage events show what this can look like in practice: Layout Error in Advertising Material und Ad Agency Orders Wrong Advertising Material.

All these cases show impressively that the risk of errors lurks everywhere and can at best be minimised with a great deal of care, but never completely eradicated. Reason enough to protect yourself just in case.

Risk #3: Cybercrime

No industry is exempt from this threat, not even agencies. On the contrary: the danger from cybercrime is growing every year and every company should prepare for it - because both your customers and your own IT infrastructure can be damaged. You should therefore regularly inform yourself about the common methods used by criminals so that you know what you are up against. Common scams include the following:

• Ransomware
  Hackers gain access to IT systems, encrypt files and then extort a ransom to release them.
• Social Engineering
  Here, victims are manipulated into performing a certain action so that criminals can access important data. This takes the form of phishing emails, for example, in which recipients are asked to click on a link with malicious software.

The fake president trick, on the other hand, involves criminals posing as a manager and demanding payments from employees or customers.

With a few preventive measures, you can at least minimise the risk of falling victim to a cyberattack.

• Regular backups and updates
• Do not click on email attachments or links lightly
• Never pass on sensitive data by email, phone or text message
• Use multi-factor authorisation
• Use VPN when working on the move
• Regular awareness training for agency employees

Data Protection

This point is inextricably linked to the topic of cybercrime. Because in an agency, you handle sensitive customer data every day, which can cause great damage in the wrong hands. It is therefore essential to guarantee seamless data protection in accordance with the General Data Protection Regulation (GDPR).

For this purpose, keep a processing directory with all processing operations of personal data. Create a deletion concept so that you do not collect any data that is not absolutely necessary and also document the technical and organisational measures with which you want to implement the requirements of the GDPR. Don't forget to draw up contracts for order processing if you collect data on behalf of external service providers, for example for a mailing campaign.

Another important point is the regular training of your employees. This is because they are (usually unknowingly) one of the biggest gateways for successful cyberattacks.

Risk #4: Property Damage

Property damage refers to the damage, destruction or loss of objects, equipment and premises. For operators of an agency that mainly works digitally, it seems far-fetched at first that this type of damage represents a real business risk. However, this risk can affect any industry - regardless of whether the work is analogue or digital. The case of a marketing agency that was supposed to refurbish an expensive car for an event proves just how quickly property damage can actually happen. This project went wrong on several levels: Incorrect Foiling Ruins Vehicle - A Real Damage Event.

However, such property damage can also occur on a smaller scale. During a video shoot at a client's premises, the ceiling of a conference room was damaged. We reveal how this happened here:  Customer Property Damaged During Video Shoot.

Risk #5: Overconfidence & Poor Communication

Risk factors for your business are not only of a professional nature, but also of a human nature. Because when different people work together, opposing views often clash. It is therefore important to realistically assess your own abilities, but also to clarify in which points and to what extent the customer or client needs to provide support. Communicate openly to your customers how you think a project can be realised. This also includes discussing where problems may arise and how you intend to deal with them. Always maintain professionalism and respect - even if a project does not run completely smoothly.

If you take these suggestions to heart, you will make an important contribution to successful collaboration. You will also maintain a professional, friendly relationship with your customers and increase the likelihood that they will return to you for a follow-up order.

Avoid Liability: What Really Helps

Preventing liability cases from the outset is an obvious idea. In practice, however, this is not possible. In addition to dealing sensibly with the risks already mentioned, you should therefore take further measures.

Draw up a specification in which you define the service to be provided precisely, clearly and comprehensibly. You should also set out in writing how you intend to implement the project and record any potential problems. This will not only help you to avoid a number of misunderstandings and disputes, but will also allow you to quickly present your customers with an initial concept that still has room for any change requests. As a general rule: document the progress of the entire project, and in particular any change requests, clearly and regularly.

It is also helpful to clarify a few important points in the contract:

• Specification book
• Precise schedule
• In the case of a work contract, the date of acceptance (acceptance is the prerequisite for full payment and triggers limitation and warranty periods).
• Additional costs for change requests
• Handling of project delays
• Warranty and liability issues
• Obligations of the client to co-operate

In this way, you create a contractual framework in which all parties can operate with greater certainty. It is best to use your own general terms and conditions and draw up a service description adapted to them. Also insist on an acceptance protocol for completed projects.

In this way, you create a contractual framework in which all parties can operate with greater certainty. It is best to use your own general terms and conditions and draw up a service description adapted to them. Also insist on an acceptance protocol for completed projects.