Contract Amendments – Always in Writing

Signature by Sebastien Wiertz from Flickr (Creative Commons License)

When a lawyer writes a contract for a client, it usually includes provisions that say that the all the terms of the agreement are contained in the document and all changes to the contract must be in writing. It may look something like this:

This Agreement is the entire understanding between the Parties concerning the subject of this Agreement. This Agreement replaces and supersedes any and all prior oral or written agreements and discussions between the Parties on that subject. All amendments to this Agreement must be in writing and signed by the Parties.

Contracts are relationship management documents. They keep everyone on the same page to prevent problems down the line or to help resolve problems when they occur. One of the challenges I encounter with contract clients is they often don’t follow the contract they signed and amend the agreement that is documented only in an email exchange, or worse, a undocumented verbal agreement.

Always Get It In Writing
The purpose of the “entire agreement” clause is to put all the terms of the contract in a single document. All written amendments should be stored with the original agreement – in hard copy and/or electronically, so if there is a question or dispute, the parties only need to review the single or amended document. They don’t have to piece together the contract from the parties’ communications and actions.

If you don’t get your amendments in writing, you’re asking for trouble. There could be confusion about what the change is, or worse, the other side could deny the existence of an amendment and screw you over. Remember, the law does not care about what you know, only what you can prove. If you don’t get your amendments in writing, and you have an “entire agreement” clause, if you have to go to court, the judge could say the amendment doesn’t exist.

Contract Amendments Can Be Easy
Why don’t people put their contract amendments in writing. I suspect it’s because they think it will be a hassle, cause a delay in a project, be time-consuming, or maybe they don’t even think to put in it writing because “it’s not a big deal.” In general, contracts exist, not for when things go right, but when they go wrong. What you think is a minor verbal change when both sides are getting along can become a big problem if things turn sour.

If you spend $100s or $1,000s to have a lawyer draft your contract, don’t revise it without their involvement. You’ve invested time and money to protect your interests. You don’t want to inadvertently throw that away with a damaging and undocumented revision.

Contracts are your Friends
These are some of my guidelines when it comes to reading and drafting contracts:

  • Never sign a contract you don’t understand. Don’t be afraid to ask for clarification.
  • Whomever writes a contract does so for their or their client’s benefit. Keep that in mind when a contract is written by the other side. (Lawyers have an obligation to represent their clients zealously.)
  • Substantial business contracts should always be reviewed by a lawyer to ensure it’s complete and protects your interests.

A contract should be written to protect everyone involved – to make sure everyone understands and agrees to the same course of action.

I’m constantly reviewing and drafting all types of contracts for clients. If you want to keep up with what I’m doing or if you need help, you can contact me directly or connect with me on TwitterFacebookYouTube, or LinkedIn. You can also get access to more exclusive content that is available only to people on my mailing list, by subscribing here.

Getting Fired because of your Side Hustle

Explosion by Charles Dyer from Flickr (Creative Commons License)

Don’t Blow Up Your Master Plan | “Explosion” by Charles Dyer from Flickr (Creative Commons License)

When I was on one of the weekly calls with my mastermind group last week, one of my fellow Shankminders asked me to comment on a phenomenon amongst entrepreneurs – working on your side gig while at your full-time job.

Wait . . . what?! There are people out there sitting at their desks, and while they are supposed to be working for their employer, they are working on their side hustle? I was incredulous, but the members of my group knowingly nodded their heads.

I thought my head was going to explode. How can anyone think this is ok?

Am I the only person who read in their employment contract? What are you supposed to do on the first day of work besides read the company handbook? Even before I went to law school, I remember signing off on company policies that said employees couldn’t use company time or company resources to run a side business. At the time (2005ish), I assumed this policy primarily applied to people who might be realtors or the like on the weekend, but now I see how this applies to anyone who has a side business – including bloggers and other social influencers.

The notion that people are running their side gig during regular work hours raises a lot of red flags for me.

  • If you are an at-will employee, you can be fired for any reason, or no reason at all. Working on a side project when you’re supposed to be doing your work tasks seems like a good reason to fire you, especially if you’re neglecting your work duties to do it.
  • Employers can easily track what employees are doing at work with technology like keystroke trackers. You may be telling your employer a lot more than what websites you’re visiting – like passwords and your company’s trade secrets.
  • Your contract may have a provision that says anything you create during company time or using company resources is owned by your employer. If your contract has this provision, you may unwittingly forfeit your business to your employer, without any options for recourse.

Some employees have a provision in their contract that says that anything they create during the ten-year of their employment that is related to the work of their employer, is owned by the employer. This could apply to projects done even outside the office.

In general, I am an advocate of employer’s staying out to of employees’ business – personal or otherwise – and that comes with the obligation that employees keep non-work issues out of the office. I understand why it makes sense for someone to occasionally check social media at work, or like during their lunch break. And unless there is a security reason to prohibit it, employees should be allowed to have their phones at their desks to take phone calls or respond to text messages related to their families, permitted it doesn’t interfere with doing their jobs.

But work on a side gig while at the office? No no no. (At least, not without permission.) There are too many risks, the least of which is losing the job which is paying your bills while you’re getting your side hustle off the ground.

If you don’t know what the rules are at your office, go back and read them. Ignorance of the company rules, particularly the ones you signed off on, will not save you from discipline or worse. If you need help understanding how to work on your side gig while at your current employment, talk to a business attorney her knee or a resource that helps entrepreneurs in your community. If you want to see me pontificates more about this and related topics, you can contact me directly or connect with me on TwitterFacebookYouTube, or LinkedIn. You can also get access to more exclusive content that is available only to people on my mailing list, by subscribing here.

Severability: Lifesaver of Contracts

Cut out and collect! by Rob Brewer from Flickr (Creative Commons License)

Cut out and collect! by Rob Brewer from Flickr (Creative Commons License)

Part of my job as a lawyer is writing and reviewing contract. I love writing contracts – you put in creative and crazy clauses as long as they’re legal. I get many clients who draft their own agreements or get a contract from a peer or template website (shudder) and ask me to review it.

Most clients do an adequate job getting the basics terms into the document – offer, acceptance, and consideration – but where they falter is boilerplate legalese that every contract should have. (I swear we don’t put this stuff in there just to make it look fancy. It serves valuable purposes.) One of the most important provisions people who draft their own contracts forget is severability.

A severability clause saves a contract in the event that one of the provisions is invalid or illegal. It lets the party (or the court) cut out the invalid provision and allow the remaining terms stand as the contract. Here’s a simple severability clause I’ve used in other contracts:

If any provision of this Agreement is held invalid by a court of competent jurisdiction, such invalidity shall not affect the enforceability of any other provisions contained in this Agreement, and the remaining portions of this Agreement shall continue in full force and effect. If a provision is found to be invalid, the Parties hereby request that the intention of the invalid provision be upheld wherever possible.

 

So what happens if your contract doesn’t have a severability clause?

If all the terms of your agreement are legal and valid, nothing. You don’t need a severability clause to save it.

If you don’t have a severability clause and you have a term in the agreement that’s invalid, it could invalidate the entire contract. (Yeah, that’s bad.)

So if you’re in a situation where you have written contract with someone, and you think they’ve violated it, you could sue them for breach of contract (assuming the contract allows for this). If the alleged breacher shows the court that there’s an invalid provision in the contract and no severability clause, the court could declare that the entire contract invalid. If that happens, there’s no written contract between you, which means there might not be a legally-binding agreement. If that’s the case, there can’t be a breach – and you just lost your case.

Severability clauses are short provisions that can have a big impact in a contract dispute. It’s one of the provisions I include whenever I draft a contract and one of the first provisions I look for when reviewing an agreement for a client, especially if there’s a suspected breach.

I always caution people who look to friends, colleagues, or the internet for free contract templates or who draft their own documents. At the very least have a lawyer review your agreement before you start using a document to make sure it addresses your needs and protects your interests.

If you need help with a contract or are looking for more information about contracts, you can contact me directly or connect with me on TwitterFacebookYouTube, or LinkedIn. You can also get access to more exclusive content that is available only to people on my mailing list, by subscribing here.

Know the Fine Print – Dispute Resolution

Fine Print by CJ Sorg from Flickr (Creative Commons License)

Fine Print by CJ Sorg from Flickr (Creative Commons License)

Every contract needs a dispute resolution clause – every contract. It’s something you should look for in every contract you read. If you’re given a contract to sign that doesn’t have one, I strongly recommend adding one in. That’s what I would do.

The dispute resolution clause in a contract is the how-we’re-going-do-deal-with-problems provision. It lays out how and where problems will be resolved when they occur.

How Problems will be Resolved
There are three main ways people general resolve problems in a contract:

  • Mediation: Hire a mediator to help you resolve the problem – more likely to results in “splitting the baby” and not a winner and loser.
  • Arbitration: Hire an arbitrator (or panel of arbitrators) to hear/review your arguments and make a decision. (This is what they used in Erin Brockovich.) Sometimes arbitration is faster and more cost effective than litigation, but not always.
  • Litigation: This is the traditional civil lawsuit. This is what I recommend for most contracts I write for clients.

You’re not limited to only these three options. You can have anything in your dispute resolution clause as long as it’s legal. So if you want to resolve disputes by throwing darts or Rock-Paper-Scissors-Lizard-Spock, you can.

Where Problems will be Resolved
The dispute resolution clause should specify in which county and state disputes will be resolved. If you’re writing the contract, you want the opposing party to have to fight you on your turf if there’s a problem. This is why most contracts I write for clients require them to resolve all disputes in Maricopa County, Arizona and that all parties agree to that jurisdiction. Without such a provision, you may find yourself having to travel to fight disputes in the opposing party’s state, and possibly needed to employ a local lawyer for additional assistance.

Which Law Applies
The laws in each state are slightly different. This is why it’s imperative that your contract state which state’s law will govern the contract for all non-federal claims. Federal claims (like many intellectual property issues) are governed by federal law. You don’t want to have a dispute within the dispute about which law applies to the state-law claims.

There may be other provisions in the dispute resolution clause like a requirement to notify the other party in writing if you believe they’ve breached the agreement and a set time in which they have to cure/fix it before you can take further action against them. Another clause to look for is a provision that requires the loser in a dispute to pay for the winner’s attorney’s fees. I like to add this into contracts I write. It makes people think twice before going after the other.

Next time you buy a ticket for a show, professional sports, travel, or sign up for an account on a website – read the fine print. See what the dispute resolution clause requires. You’ll quickly see that whoever writes the contract, does so with their (or their client’s) best interests (not yours) in mind.

If you need help writing or reviewing a contract, speak to a business lawyer about your needs and options. If you have questions about contracts that you want to discuss with me, you can contact me directly or connect with me on TwitterFacebookYouTube, or LinkedIn. You can also get access to more exclusive content that is available only to people on my mailing list, by subscribing here.

Kesha v. Sony – Cautionary Contract Tale

Microphone by Photo Cindy from Flickr (Creative Commons License)

Microphone by Photo Cindy from Flickr (Creative Commons License)

Last week, a New York Court refused to nullify the contract between recording artist Kesha and Sony, despite Kesha’s allegations that she was drugged and raped in 2006 by her producer, Luke Gottwald (a.k.a. Dr. Luke). Gottwald has not been charged with this crime. Kesha admitted she’s afraid of Gottwald, but she said if she doesn’t work with him (even though Sony offered to give her another producer), she’s worried Sony won’t promote her music properly. If everything Kesha said is true, she is trapped in a situation where she has to risk her personal safety for professional success.

Why Sony Won
The reason Sony won this case appears to be basic contract law – the verbiage of the contract wouldn’t allow for the change. When it comes to creating a contract, it’s a relatively low bar to clear to have a legally binding contract. And if the parties want to change the provisions later, they may only be able to do so under limited circumstances, such as by mutual agreement. If the contract is valid and the other side is not open to making changes, you’re stuck with the verbiage and the commitments of the original agreement. I suspect that’s what happened in this situation; Kesha signed 6-album deal, and her allegations that her producer raped her isn’t sufficient to force Sony to change the terms or release her from the contract entirely.

Personally, I believe Kesha. It’s rare for a person to lie about being sexually assaulted. However, the law doesn’t have this luxury. The court can only make decisions based on what the parties can prove, so without a conviction or a confession, the court can’t determine if her allegations is sufficient to release her from this contract.

Ke$ha by Becky Sullivan from Flickr (Creative Commons License)

Ke$ha by Becky Sullivan from Flickr (Creative Commons License)

Turn Back the Clock
Given that hindsight is 20/20, what might Kesha have done differently when negotiating her contract with Sony? I am not sure it was wise for either party to commit themselves to a 6-album deal. Perhaps it would have been better for the artist to only commit to 2 albums and then renegotiate. Given Kesha’s young age when she signed with Sony, perhaps she, and other young artists, should have provisions geared towards their personal safety such as cameras that record all meetings and security or at least a personal representative all times that she’s working as well as provisions that address physical and emotional abuse. I also wonder if it wouldn’t have been prudent for both sides to have a provision that required regular drug testing to help prevent artists from getting into trouble and from being taken advantage of by people who should be protecting them.

What Could Kesha do Now?
Since a Kesha appears to be legally obligated to work with Sony and her alleged rapist, what should she do now to protect herself? Her safety should be the top priority. In regards to Gottwald, Kesha should never be alone with him. She should have security at her side at all times when he’s present. Gottwald should not be permitted to be within 10 feet of her, be able to contact her directly by phone or using any electronic means, or for any reason except as professionally necessary. I’m also not opposed to Kesha being legally armed (pepper spray, stun gun, etc.) if that makes her feel safer for the duration of her contract.

Contracts are a beautiful thing when they are written properly. However, we can see from this case how it can be a disaster when parties don’t plan for the worst-case scenarios. (I agree that it is an incredibly sad that artists have to consider the possibility that they will be physically harmed by their business partners, but this case shows that it is something that should be discussed at the negotiation table.) If you have a question about writing effective contracts, please contact me directly or connect with me on TwitterFacebookYouTube, or LinkedIn.

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Be Wary of Downloading Contract Templates

Copy Taste by Maik Meid from Flickr (Creative Commons License)

Copy Taste by Maik Meid from Flickr (Creative Commons License)

One of the questions I frequently get at my speaking gigs is where can people go to find good contract templates online. This question makes me simultaneously happy and nervous. On one hand, I’m happy that the person is asking about their contract needs; however, I’m nervous that they think there might be an acceptable resource online that could replace proper legal advice.

I usually tell these people that contract templates from the internet are a good place to start when doing research on a type of contract and the types of provisions they should include in their agreement. It should be the beginning of their search, not the end. When you look at a contract template online you can never know for sure who wrote it, where it came from, or whether it would be suitable for your needs. There have been many times when I’ve seen someone using a contract for their business that had provisions that made no sense – like a 2-person business that had an operating agreement that required a 2/3 vote to make changes and an Arizona-based business that was using a contract that said the agreement was governed by New Jersey law.

Instead of looking on the internet for a template, you might be better off asking your colleagues in your industry if they would be willing to share their contract templates, depending on where they got them. You are more likely to find provisions that are applicable to your business and the practices of your industry.

Regardless of where you get your templates, it’s always a good idea to have a business lawyer review them before you use them for your company. Otherwise you may find yourself using a contract that is bad for your business, and as long as the provisions of the contract are legal, you could be stuck with it. It may not be as expensive as you think to have a lawyer review your contract in advance. I’ve always said it’s cheaper to hire a lawyer in the beginning to prevent problems than to have to hire one after the fact the clean up the mess.

If you don’t already have a contract template you’re considering using, talk with your lawyer about whether it would be more cost effective for you to find or create your own contract draft for them to review or simply hire a lawyer to create your contract from scratch.

And be equally leery of contract templates created and sold by lawyers. Some of these are good and some of these are crap. I saw an operating agreement this year that was created by a law firm that sells start-up packages for businesses. My client asked me to review the contract to help him resolve a problem with one of the owners. This contract was dozens of pages long, was filled with excessive legalese, and did not address all of my client’s needs; hence, he needed a hire me to help him fix his problem.

Best of luck to everyone whose plans for 2015 include starting a new business. Creating contracts to suit the needs of your business should be one of the many things on your to-do list. If you want to chat with me about your business plans for 2015, feel free to connect with me on TwitterFacebookYouTubeLinkedIn, or you can email me.

Please visit my homepage for more information about Carter Law Firm.