Know Before You Sign: Common Red Flags Found in Commercial Agreements
Contracts are the backbone of businesses. They state and legally bind the intentions and responsibilities of all involved parties. So, is your business staring down the barrel of a bad contract that can cripple progress?
The White Summers team helps businesses of all sizes and at all stages of growth make sound legal decisions. This includes drafting and reviewing contracts and ensuring what our clients are signing up for isn’t going to stop them in their tracks.
So, what does your business need to look out for before signing a commercial agreement?
Unclear Scope of Work
You need to know your role in the agreement. A large portion of contract work is to define the scope of work expected and the timeline that the work needs to be done. If you find yourself reading your contract and are still unsure of these elements, don’t sign. You put your company in a bad position when expectations and timelines aren’t clear. Instead, ask for terms that clearly define those expectations and allow you to begin the work at an appropriate time and rate.
Non-Compete and Other Restrictive Covenants
Competition breeds innovation. This is why the government is currently discussing a rule to ban all current and future non-compete clauses for American businesses. The Federal Trade Commission (FTC) rule includes additional restrictions for other forms of restrictive covenants, as well.
As of this writing, however, these remain legal. Non-compete clauses limit the flexibility of your business and often delay growth by preventing you from soliciting the work and benefits of other partners and vendors. It’s imperative that you are prepared to remain in an exclusive agreement with the other party or parties for the term of the contract before agreeing.
Forced Arbitration
These clauses can be controversial in some contexts, but in business, they’re common. The problem is that larger businesses with more leverage use them against small businesses and vendors as a means to control the venue and terms for dispute resolution. You lose most control over how you are compensated for the other party’s misdeeds in a breach of contract if you agree to the other party’s terms of arbitration.
Indemnification Clauses
We aren’t here to say indemnification clauses don’t have a purpose in contracts – they do. However, you need to tread carefully and understand exactly who these clauses are pushing liability onto. An indemnification clause stipulates the circumstances under which one or more parties will be held responsible for compensation for any losses or damages that occur during the life of the contract. Mistakes happen, but you need to understand when and how you are held responsible for them vs. the other party.
Counsel Restrictions
In some rare cases, a business wants to limit the actual law firm or attorney another party works with as it pertains to the contract in question. You have the right to your own attorney and should avoid signing this away.
Before you sign any contract, it’s important to have a business attorney review the contract and draft any necessary revisions. Contact White Summers and protect your business’s ability to go from local to global.
By White Summers