Why Contracts Have So Many Definitions

https://www.flickr.com/photos/eleaf/2561831883

Iron Horse Bicycle Race Durango Women 10″ by Eleaf from Flickr (Creative Commons License)

This week, I had a chat with someone who was concerned about the media release provision in a contract to be in a cycling race. It said by signing up for the race, you give the organizers permission to use any video or images of you, your likeness, you name, and your biographic information for any purpose without need any additional information from you. He was worried that the race organizers could sell his life story without his permission.

I’ve seen this provision on every race contract I’ve signed – and it wasn’t one of the ones I altered. This type of provision is on lots of contracts, event tickets, even on A-frame signs around the state fair. Organizers want to use the photos from their event to promote the organization and its activities. They want to be able to make you their poster child if they snap an amazing photo of you. They want to be able to caption a race photo with “Chris Jones, 37, of Truth or Consequences, New Mexico . . .”

These organizers don’t want to sell your story to make the next Lifetime Movie. I know this because (1) they don’t know your life story and (2) they’re not in the business of sell stories for the next movie of the week.

This conversation reminded me of why contracts have so many definitions. Sometimes they start with pages of definitions. They help eliminate confusion and avoid disputes when questions arise down the line.

If there is a dispute about the meaning of a word in a contract, and both sides have a reasonable interpretation of it, the court will side with the person who didn’t draft the contract, unless the contract states otherwise. (Check your jurisdiction’s rules to see if the same rule exists where you live.)

Going back to the would-be racer, I told them if they had concerns about what a term in the agreement meant, they should email the organizers for clarification. (Never be afraid to ask questions about a contract before signing it.) If there’s a dispute later surrounding the meaning of the provision, they would be able to use the email response as the basis for their reasonable belief as to what it meant and to counter any contradictory statement by the other side.

If you’re in a situation where you need to create, draft, or negotiate a contract, please call a contract lawyer for help. (This week, my editor sent me an FYI email about a company in Columbia that is selling a “Pack Of Professionally Drafted Legal Contracts” for $24. I responded with “Let me know how that $24 contract holds up when challenged in court.”)

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How to Legally Use User-Generated Content

https://www.flickr.com/photos/zoidberg72/16243539933
Selfie by dr_zoidberg from Flickr (Creative Commons License)

Here’s a question I get from companies and their marketers: What are the legal dos and don’ts for using user-generated content? These are situations where a company wants to use a photo, video, or text created by one of their fans, usually from a site like Instagram, Facebook, or Trip Advisor. Many companies merely want to approach the person through the platform where they found the content they want to use and ask for permission to use it. While this strategy is convenient, it may not be in the company’s best interest.

Using Content Within a Platform

It’s easiest when a company wants to share someone’s post within the social media platform – e.g., sharing someone’s Instagram photo on the company’s Instagram. Many social media sites build this option into the platform where you don’t even have to ask for permission to share someone’s post on another’s account.  

Of course, I’m a risk-adverse lawyer so I tell my clients to review the terms of service first to see what happens just in case it turns out the person who created the post you shared didn’t have the right to do so and now you have to deal with the fallout. Depending on the circumstances, I might contact the person to ask the person if they took the photo (which would indicate if they’re likely the copyright holder), try to verify that the original poster is complying with the platform’s rules

Using Content Across Different Platforms

Here’s where it gets a little more complicated. These are the situations where you want to take content from someone’s post on one platform and share it on a different social media site, your website, or another third-party platform. For this situation, I recommend you have a contract drafted by a lawyer. You could have them create a template for you if curating user-generated content is part of your marketing plan.

If I were creating a contract template for obtaining permission to use content created by a user or fan, I’d likely include terms such as:

  • The user owns the IP in the content: either they created it or they have permission to use it
  • The user has authority to grant the company permission to use the content
  • The user grants the company a perpetual, irrevocable, worldwide, sublicensable, paid-in-full, royalty-free license to the company to use the content for any purpose without needing the person’s consent or credit, including the creation of derivative works (or in the alternative, that the user grants the company a copyright assignment)
  • The user will reimburse the company’s legal fees and damages if it is accused of wrongdoing because the company used the user’s content

Such a contract would also include boilerplate verbiage, like a dispute resolution provision that states how the company and user will resolve disputes if one occurs.

Always Apply Reality

In any potential legal situation, be sure to apply reality. If a company wants to use a photo with two people in it, whoever posted the image may not be able to speak on behalf of the other person in the photo, and you may need release from identifiable people to avoid being accused of violating their right of publicity.

Additionally, it will likely take longer to get permission if you want to use images and other content across platforms. Be sure to build that into your timeline if your marketing plan involves using user-generated content.

There are also those who may question whether it’s worthwhile to have a lawyer create a contract for these circumstances. When there are no issues, a contract may seem superfluous; however, contracts are imperative in situations where there is a dispute and/or the parties forget the terms of their agreement. When you work with your lawyer to create you contract, make sure it has provisions that will apply to situations that are likely to occur as well as the worst-case scenarios.

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Legal Checklist to Protect Online Entrepreneurs

Labib Ittihadul from Flickr (Public Domain)

I was recently asked to create a list of what legal steps an entrepreneur should take if they operate solely online to protect their business. The person who asked appears to be primarily a YouTuber. Here’s the list I created for him: 

1. Consider having Two LLCs. One is a holding company for the intellectual property and licenses the IP to the other LLC to use it. This way if the holding company is sued for infringement, there are no assets to be collected if the holding company loses the lawsuit. We recommend this tactic for many businesses, not just online entrepreneurs.

2. Create an Operating Agreement if the LLC has more than One Owner.  Yes, this includes if you go into business with relatives, best friend, or romantic partner. This is a master document that lays out how the company will operate, each person’s obligations and responsibilities, and how the owners will address problems when they occur.

3. Move your Website to a Server Outside the U.S. The reason for doing is if there is ever a court order against the website, it will be more difficult to enforce if the website is house by a company outside the U.S. and not bound by U.S. law.

4. Register your Trademarks with the USPTO. So many legal issues could be minimized or avoided if every company properly registered their trademarks. This could include company names, product names, event names, logos, and slogans. When you have a registered trademark, you can stop a competitor from entering the marketplace while using a trademark that is confusingly similar to yours. If you have a strong international presence, it may be wise to register your trademarks in multiple countries.

5. Create a Copyright Strategy. Many professional content creators do guest posts for and collaborations with others and allow guest posts on their sites. It’s best to have contract templates for these situations that include clarification about who owns the copyright, what the other person gets, any limitations regarding the content, and an indemnification clause if appropriate.

Additionally, your copyright strategy should address when and how you can use others’ materials. You should have an understanding about fair use and where to look for materials that come with a license to modify the original as well as a license to use it for commercial purposes.

6. Consider Registering your Copyrights. You do not have to register your copyright to get your copyright rights, and you do not have to register everything you create; however, it’s beneficial to have the discussion about what you might want to register. You are required to register your copyright if you want to sue for infringement. Additionally, I frequently recommend registration to people who want to license or sell their copyrights.

7. Create an Action Plan for Addressing Suspected IP Infringement. Decide how you want to respond to suspected infringement before it occurs, so that you or your lawyer can be prepared to respond based on your desired outcome when it happens. Depending on how you want to respond, there may be things you need to do before the infringement occurs to best protect your rights.

8. Have a Contributor Contract Template. This is the contract you will use with people who contribute content to you, your site, your channel, or a social media account. It will state what rights each party has to use the content – most likely that they own it, and they grant you a license to use for certain purposes. It should also have an indemnification clause to protect you in the event you’re accused of violating another person’s IP rights or other legal wrong by using what the contributor provided to you.

9. Have an Influencer Contract Template. This is the contract to use when brands hire you so that the expectations on both sides are clear, and you state that you comply with FTC regulations. (You should probably have internal documents about FTC compliance as well.) Companies that hire influencers may have their own contracts that they want to use, but having your own template will help you analyze their contract to see how well it addresses your needs and concerns.

10. Create Website Terms and a Privacy Policy. These documents may need to comply with U.S. privacy laws, the Canadian Anti-Spam Legislation (CASL), and the General Data Protection Regulation (GDPR), and manage the expectations of visitors to your website. Many of the new privacy laws interfere with how many companies collect and use others’ personal information. These issues are complicated. Many people copy another content creator’s terms and privacy policy, but that could be a recipe for disaster if what you use is insufficient for your needs.

This may not be a complete or comprehensive list of legal steps to take to protect your business. It’s always best to consult a lawyer who understands the legal implications related to your business, preferably someone to specializes in business, intellectual property, and internet law. Hopefully this list gives you a place to start to evaluate your legal needs as a professional content creator or online entrepreneur.

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Model Release and Regret

“Subway Ballet” by J Stimp from Flickr (Creative Commons License)

Recently, I received an email from a photographer (not my client) who had a question about the validity of model releases. As I understood the situation, he hired a model (over age 18) to do a photoshoot at his studio. The model was photographed nude for at least part of the shoot. The model signed a model release and was paid for her modeling services.

After the photoshoot, the photographer censored some of the images to comply with Facebook’s rules and posted them online.  The model saw the images and was upset. The photographer asked me if the model had any authority to force him to take the images down.

The Rules of Model Releases
Model releases are standard in the photography world. In most cases, the photographer owns the copyright in their work from the moment the photo is created, not the person in the photo, and the model owns the right to publicize their own image.

The model release transfers the model’s right to publicity in those images to the photographer, which allows the photographer to use the images per the terms of the release. Usually, when I write a model release or a model release template, the model gives the photographer permission to use the images in any way and for any purpose, without restriction.

In general, once the model release is signed, the model’s given up their rights. If the model later regrets signing it, there may be nothing they can do to “unring that bell” unless the photographer is willing to negotiate another agreement – such as a copyright assignment where the model purchases the copyright rights in the images from the photographer.

Think Before You Sign
If you are a model, read the model release carefully. Never sign the release without reading and understanding it. Many of them allow for unfettered use by the photographer, including the right to license the images to others. Treat the images as if they are going to end up all over the internet, on billboards, on products or marketing campaigns you hate. Chances are, that’s not going to happen, but it could.

I write not just as a lawyer, but also a model myself. On a number of occasions, I have written and signed my own model release. Models may give up substantial rights when signing these documents, so it’s not a decision to make lightly.

What Could Invalidate a Model Release
Even if the model release was written by a lawyer and appears to valid on its face, there are situations where a model release might be invalid due to the circumstances surrounding the shoot:

  • The model was minor (Depending on your state, minors may not be able to sign contracts or they can withdraw their consent upon reaching the age of majority.)
  • The model was an adult but lacked the capacity to enter into a legally binding contract. (These people usually have an appointed guardian to sign for them.)
  • The model was intoxicated. (In general, intoxicated people can’t enter into valid contracts.)
  • The model was forced to sign the contract under duress. (You can’t get a valid contract if you use threats or force to get someone to sign it.)

There can also be instances where the photo in question was taken outside the scope of the model release and so the model release does not apply.

I get questions every day about photography, image rights, and copyright. If you are a photographer or model (or aspiring to be one), it’s imperative that you understand these issues. Many disputes can be avoided with well-written contracts and accurate information. I’m constantly doing work in this area, so if you want to keep up with what I’m doing or if you need help, you can contact me directly or check out the other posts and videos I’ve done on the legal side of photography. You can also get access to more exclusive content that is available only to people on my mailing list, by subscribing here.

Can You Afford to be an Entrepreneur?

Money Unfolding by CreditCafe.com from Flickr (Creative Commons License)

When I decided to launch this law firm, a good friend and fellow entrepreneur/lawyer warned me: “You’re going to need 6 months’ worth of money and 12 months’ worth of patience.” He was right. Fortunately, I had nearly 3 months from deciding to opening my practice until our first day in business, which gave me time to research and formulate my offerings and tap into community and professional resources to get my business off the ground.

Other entrepreneurs aren’t that lucky. They may not have the time and/or money to consult counsel prior to launching a new venture. Even on a condensed time frame or on a shoestring budget, your legal needs should be part of the discussion and plan.

Full-Time Venture Needs Financial Backing
If you want your new venture to be your full-time job, you need to be prepared for the potential financial strain that comes with that undertaking if you don’t have a spouse or other income supporting you in the meantime. You may have the gift of time, but you can only operate your business as long as you have income or savings to cover your bills. I don’t recommend jumping into a new venture without some type of financial safety net.

For entrepreneurs starting with a side hustle, you have the opposite issue. Your regular job can pay your bills while you develop your business, but it limits how many hours you can work. And depending on your circumstances, you job may not provide much money to put towards your business after paying your bills.

Make the Business Fund Itself
While every business needs some seed money to get started, make your business fund itself. When you decide to start a business, make a list of all the services, equipment, and supplies you think your company needs. Then step back and categorize each item as “Must Have” or “Nice To Have.” Ask a trusted colleague or friend to review your list and challenge you on what you need.

Many businesses don’t need much to get started. When I started this firm, I only needed an LLC, client contract templates, computer, scanner/printer, website, email address, phone number, and business cards. I gave myself a limited budget for supplies, bar dues, and to pay for my LLC and my accountant, and after that, I didn’t buy anything for the business until the business could afford it. (Even if my personal account could afford it, I made myself wait until the business could afford it.) It forced me to be scrappy, creative, and thoughtful about how I spend my money. It’s something I recommend to other entrepreneurs, including seeking out low-cost and free options when appropriate.

Prioritize
I regularly receive emails from people who need help with the legal side of starting a business, and some of them claim that they can’t afford an hour of legal services. Sometimes I wonder if these entrepreneurs didn’t do any research into the expected costs of a consult, contract, or trademark when creating their business budget. (When people can’t afford my firm, I’m happy to provide referrals to other options and/or tell them what things they can do themselves – like filing an LLC with the Arizona Corporation Commission. The forms and instructions are online.)

A fellow entrepreneur suggested that these potential clients don’t see value in paying for quality legal services. That sounds plausible. Many new entrepreneurs are focused on their expected success that they don’t want to ponder the what-if scenarios. In many ways, quality contracts and other legal services protect you when things go wrong. You often don’t need to rely on them when things go right.

My recommendation for all new entrepreneurs is to meet with a business accountant and a lawyer to make sure you’re starting out on the right foot, and that you understand the legal implications of your venture. If you have questions about business needs, 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.

Avoid Litigation: Contracts and Timing

Water wheel close-up by Edward Webb from Flickr (Creative Commons License)

The most efficient way I’ve seen to avoid problems in a business contract situation is to set up the relationship between the parties in such a way that each side is forced to perform to get what they want from the other side. Just like a water wheel feeds the machine that keeps the wheel turning, the parties should be compelled to give the other side what they need.

Contract = Relationship Management Document
A contract is a merely a document that outlines a relationship between parties – what each side must do, and what they get in return. Every contract should have a dispute resolution provision that outlines how the parties will resolve problems if they occur. In a perfect world, the parties will never need to resort to this clause.

While a good contract will have a thoughtful dispute resolution clause, a great contract will structure the parties’ relationship in such a way that neither side can fathom breaching it.

Structure the Relationship to Feed Everyone’s Needs
When I begin work on a new contract, I ask my client to paint me a word picture of the people involved and the relationship between them. I try to understand not only what each side is giving and getting, but also their motivations.

One of the obvious potential problems in a contract relationship is that one side will perform their part to the benefit of the other, and the other side doesn’t reciprocate as required in the agreement. This may be situation where one side takes your money and runs, or conversely, you do work for your client and they don’t pay you after they’ve received your work product.

The best way to avoid this situation is to set up the work flow so that each side doesn’t get what they want until the other side has done what they promised to do. For many entrepreneurs who are professional creatives, I recommend that they write their contracts to state that the client won’t receive the final product until their bill has been paid. Likewise, for photographers, I recommend that the contract state that the client won’t see the proofs until they’ve paid for their shoot in full.

Please Pay Here by Steven Depolo from Flickr (Creative Commons License)

Real Life Example
I recently worked with a graphic designer who is a smart entrepreneur with a brilliant contract. I’m creating my first online course and hired her to create the logo. Per our contract, I paid 50% up front and she got to work. She designed me a brilliant logo that fits the course and my personality. She said she’d send the final files when she received the balance.

That email came at the beginning of a week when I wasn’t home where the company checkbook lives. I told her this and she said she didn’t mind waiting until I could send payment. (Did I mention she’s a friend?) I was happy she held her boundaries to make sure she got paid before she sent the final work product. It’s not that I wouldn’t have paid her, but it was the right thing to do as a business owner.

If you choose not to write your contract with these provisions, you may be in a situation where you have go after the other side for payment or performance, possibly hiring a lawyer to write a demand letter, or taking the other side to court. If it’s a relatively low-dollar amount, you may end up in small claims court where you may get a judgment in your favor, but you still need to collect and the amount of time and energy involved to go through the process may make you question whether it was worth it.

This is why a good business lawyer is an investment for your business. They can see the potential pitfalls in your business and help you avoid them and advocate for your rights when necessary. If you need help with writing a contract that fits the needs of your business, you can contact me directly or a social media lawyer in your community. I post about these issues on TwitterFacebookYouTube, and LinkedIn. You can also get access to more exclusive content that is available only to people on my mailing list, by subscribing here.

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.