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How to Effectively Manage Your Contracts

If your entity has a wide variety of contracts, it can be a difficult task to manage them all. There are a variety of comprehensive contract management programs that can make the process easier for you. Consider the following tips:

Identify the Contracts

Before you can decide what type of contract management program will work best for your entity, you should first identify the types of contracts your organization enters into. For example, purchase orders, sales contracts, master agreements, service contracts, mortgages, real estate leases, equipment rentals, software and other intellectual property licenses, assignments and all other types of written agreement that legally bind your entity is a contract.

Once you have identified the types of contracts you will need to manage, you should also identify all of the parties your entity is working with. This includes vendors, suppliers, independent contractors, finance companies and banks, landlords, distributors, independent sales representatives, and companies with whom you have alliances. This will help you get a better overall picture of your contractual obligations.

Proactive Problem-Solving

Serious consequences can result from the mismanagement of contracts, so it is important to anticipate the problems you hope to solve by establishing a contract management system. Create some “best practices” to follow to help ensure you avoid problems. For example, if your contracts have automatic renewals, create a system for tracking which agreements will be automatically renewed and docket the deadlines for providing notice of termination if needed. You should also be tracking deadlines, payment dates and other important dates to ensure you are meeting your contractual obligations.

You should also establish a procedure for the review and approval of contracts. This includes having your legal counsel routinely review the required standard contract terms.

Contract Management Programs

A contract management program will provide organization and rules for how your entity’s contracts should be handled. For example, your contract management program should:

  • Categorize the types of contracts covered
  • Detail the personnel with authority to enter into binding contracts for the entity
  • Link contracts with appropriate budgets
  • Establish the standards for when required review of a contract must occur (such as when a minimum dollar amount is involved) – this includes setting standards for when the entity’s attorney should conduct the review
  • Identify the contractual forms or templates that may be used without prior approval
  • Outline any standard contract terms that must be met such as insurance requirements
  • Specify where the originals of the contracts must be filed and maintained

Contract Management Software

The days of using an excel spreadsheet to manage your contracts are over. There are a wide variety of affordable contract management software programs available that will save you time and meet your needs. These prepackaged programs are often more effective and functional than user-developed programs. Additionally, it is always helpful to have customer support and updates available if needed.

Work now to Make Life Easier Going Forward

You may feel overwhelmed by the thought of managing your contracts, but with diligent effort now, you will reap your reward going forward. Once all of the contracts are in the system and your agreements are organized, you will save time, money and be able to monitor the quality of the products and services provided to your entity.

If you need assistance with contractual or other business-related matters, contact Leslie S. Marell to schedule an initial consultation.

 

 

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Basics on Dissolving Your Business

If you have decided to close your business, it is important to understand that it involves more than hanging out a “closed” sign and selling off your inventory. Business owners have a legal duty to pay the entity’s creditors before any of the business assets can be distributed to the owners. Failure to follow the proper procedures in dissolving a business can result in the owners being held personally liable for the business debts.

Each state has established its own business code that sets forth how individuals can form and operate different types of businesses within its borders. Each type of business has certain procedures that must be followed when shutting down and winding up its affairs. Owners must follow these procedures in order to protect against personal liability and to ensure all business obligations end on the day the entity is officially closed for business.

State laws typically require a majority vote of the owners to close down a business. The vote to dissolve should be properly recorded in the entity’s records and should appoint an individual to pay creditors, sell assets, and close accounts.

If possible, a dissolving business must pay all of its creditors before any of the remainder can be distributed to the owners. Additionally, the law requires the entity to set aside an adequate amount of money to pay any unresolved debts. Most dissolutions laws provide that the business can publish notice in a local newspaper and establish a deadline for claims to be submitted. Proper notification in some states can prevent creditors from filing lawsuits against the business after a certain number of years, while other states provide that the notice serves to limit claims to any remaining assets that were distributed to the owners.

Your business must also file the appropriate paperwork in the same state registration office where the formation document was filed. This is commonly referred to as filing an article of dissolution or a certificate of dissolution, which establishes the date that the business closed down as part of the public record.

A dissolving business must cancel any licenses or permits that it has been using. Annual reports and tax returns should be filed, as well as any other final reports that may be required by state or federal agencies.

Dissolving your business can be complicated and it is important that it is done correctly. The above is a simplified outline of some of the factors that must be considered, but every case is unique. For more detailed information on how to properly dissolve your business, contact Leslie S. Marell today.

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The Nuances of Overtime Pay

Employers and employees often have confusion regarding overtime pay, which can ultimately lead to costly disputes. One of the most important steps an employer can take is determining whether the employee is exempt or non-exempt.

Employers are required by law to pay all employees at least minimum wage for every hour worked and a non-exempt employee must be paid the proper overtime pay rate for any additional overtime hours worked. This general rule seems simple enough, but there are numerous factors that must be considered when it is applied in practice.

Exempt Employees

If an employee is exempt, it means that he or she is not entitled to receive overtime pay (In other words, they are “exempt” from overtime pay). Generally, exempt employees are personnel who possess decision making responsibilities. They must meet specific tests regarding their job duties and must also be paid a minimum weekly salary, as set by law. Below are a few examples of the various types of exempt employees:

  • Executive exemption: To fall within the executive exemptions, the employee must be a manager who has the authority to direct and supervise the work of at least two other full-time employees. Typically, an executive has the power to make hiring and firing decisions on behalf of the business.
  • Administrative Exemption: If an employee’s primary job duty is office work, the administrative exemption may apply. An administrator performs non-manual work that is linked to managing or operating the business. An administrator usually has some discretion to make key decisions for the business.
  • Professional Exemption: If an employee has an advanced degree or has obtained specialized knowledge by attending extensive school, the professional exemption may apply.
  • Outside Sales Exemption: If the employee’s main job is to make sales calls outside of the employer’s place of business, the outside sales exemption may apply.

Non-Exempt Employees

A non-exempt employee has the right to receive overtime pay. The state law where the employee works determines the amount of overtime pay that is due. Federal law sets the minimum amount of overtime pay, which is one and a half times the employee’s regular rate of pay after 40 hours of work in a workweek.

If a non-exempt employee is paid a salary, federal law requires the employer to divide the employee’s salary by the actual hours worked to determine the employee’s hourly rate. The appropriate overtime pay rate is one and a half times this rate. Of course, the applicable state law may be greater than what is required under federal law. As a result, it is important for employers to consult with a local attorney to verify the appropriate rate of overtime pay is being used.

If you have questions regarding business law matters, contact us today to schedule an initial consultation. Leslie S. Marell has been practicing business and commercial law for over 25 years. She is established in private practice and has extensive legal experience counseling companies in the areas of business contracts and transactions, purchasing, sales, marketing, computer and technology law, employment law and day to day legal matters. Let us provide your company the advice and guidance you need.

 

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What You need to Know about the “Automatic Renewal” Clause

If you have entered into a contract that is no longer meeting your needs and you call to cancel the agreement, you may be surprised to learn that you are bound by the contract to continue paying the other party for the same amount of time as the original term of the contract. How does this happen? The terms and conditions of certain contracts contain an “automatic renewal” clause. This type of provision is also referred to as an “evergreen clause.”

An example of an automatic renewal clause is something along these lines:

All terms contained herein will automatically renew for the same length of time as the initial term of the contract unless either party provides the other with at least thirty (30) days written notice of termination of the contract prior to the expiration of the current term.

In other words, unless you notify the other party in writing at least 30 days before the current contract term expires that you do not want to renew the contract, the agreement is automatically renewed. An evergreen clause can be found in a variety of types of contracts, especially service, supply and distribution agreements.

So, is an automatic renewal enforceable? Like most things in life, “it depends.” Many courts strictly construe this type of contractual language in commercial contracts that do not involve a consumer. If the language is clear and unambiguous, the court is likely to consider it enforceable and extend the agreement for another term if proper and timely notice to cancel is not given.

Several states have passed laws attempting to make the use of automatic renewal clauses more difficult. Many require the evergreen clause to be in all bolded and capitalized letters in order to make the provision more conspicuous. Some states go further and require the party attempting to enforce the automatic renewal to provide an advance reminder to the other party that the automatic renewal date is approaching. Failure to comply with the statutory requirements can render an automatic renewal clause unenforceable.

If you have questions regarding business law matters, contact us today to schedule an initial consultation. Leslie S. Marell has been practicing business and commercial law for over 25 years. She is established in private practice and has extensive legal experience counseling companies in the areas of business contracts and transactions, purchasing, sales, marketing, computer and technology law, employment law and day to day legal matters. Let us provide your company the advice and guidance you need.

 

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Do You Need to Escape a Contract?

If you are bound by a contract that is no longer working for you, it is important to review the term and termination clauses in the agreement. The term of a contract is the amount of time it remains effective. The termination clauses outline the various ways the contract can end.

Term of the Contract

Most contracts set forth the “effective date” or the start date of the contract and a “termination date” which is the date the contract expires. It is common for an agreement to provide ways the contract can be renewed, which means that a new term for the contract is established for a set period of time. It is important to note that if your contract contains an automatic renewal clause, the agreement will be automatically renewed unless one of the parties provides notice of its intent to terminate the contract.

It is imperative that you understand the term of your contracts and your termination and renewal options. You should schedule the termination date and any deadlines for giving notice of your intent to terminate to avoid automatic renewal. You don’t want to miss your opportunity to escape a burdensome contract by missing this deadline!

Contract Termination

It is important to understand the termination provisions of your contract. The simplest way to end a contract is “without cause,” which means the terminating party does not provide a reason for the termination. You must typically provide written notice of termination to the other party.

Particularly from the Buyer perspective, it is extremely important that you negotiate such a termination without cause provision into your contract. If you no longer require the goods or services and therefore, wish to terminate the contract, this clause is one of the few mechanism that permits you to do so. Even if you have a legitimate business reason to terminate, contract law does not permit you to do so without an express provision in your contract giving you that right.

Your contract may also outline how to terminate the contract “with cause,” which means either party can end the contract if certain specified events occur. Depending on the event, the contract may allow the other party an opportunity to “cure” the event and avoid termination. Otherwise, the termination for cause can be immediately effective upon notice to the other party. It is common for termination with cause to result in a dispute over whether or not cause actually existed or if it was properly cured. Thus, if you intend to terminate a contract for cause, it is imperative that you carefully document the reasons for cause and record all events that provide you with cause to terminate. Finally, you should note that there may be certain obligations that extend past the termination of the contract, such as confidentiality provisions.

If you are considering terminating an existing contract, call Leslie Marell for help in reviewing the requirements of the term and termination clauses.

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Contract Tips for Avoiding Data Breaches – Part 2

Hopefully you have read our first blog on this topic titled Contract Tips for Avoiding Data Breaches – Part 1.” Below are more contractual provisions you should consider implementing into your vendor agreements to help ensure your confidential data is protected.

Notification Requirements

If there is a breach in security or any impermissible uses of the information, the vendor should be required to provide you with immediate notification. You may want to have the ability to investigate the breach with your own resources either on-site or remotely. Also, you will want to include a provision requiring the vendor to notify you of any governmental or other third-party requests for disclosure of information.

Subcontractors

If subcontractors are used by the vendor, you may want to be notified of or have the right to approve the use of third-parties. You may want to have access to the third-party’s security protocols and certifications.

Data Center Location

The contract should specify the geographical location of the data center. You should consult with your attorney regarding whether this could subject you to the jurisdiction of that location.

Service Level Agreements

If you have negotiated certain guarantees for access or scheduled maintenance during times that will result in minimal disruption, your contract should provide for specified monetary credits for the failure to meet such service level requirements.

Indemnification

Your contract should set forth liability limitations and the vendor’s obligation to indemnify your business for harm caused to third-parties by the vendor’s breach of confidentiality obligations, noncompliance with the law, or other similar types of conduct.

Data Breach Insurance

The contract should require the vendor to obtain adequate cyber-insurance that covers both the loss of data and the costs of responding to a data breach, which should include reasonable attorney’s fees.

There are several other contractual provisions that may be necessary for your industry or unique needs. If you are interested in learning more about protecting your business with your vendor contracts or how we can assist you with other business-related matters, contact Leslie S. Marell today.

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Contract Tips for Avoiding Data Breaches – Part 1

There has been widespread concern throughout every industry about how to safeguard and protect confidential information from data breaches. Cybercrime is becoming one of the top concerns for the Federal Bureau of Investigation (FBI). Robert Mueller, FBI director, has stated that “[t]here are only two types of companies: those that have been hacked, and those that will be. Even that is merging into one category: those that have been hacked and will be again.”

The damage that can result from a data breach can range from business interruption and damage to your company’s reputation to lawsuits and regulatory fines. As a result, your business should mitigate its exposure by implementing formal policies and procedures, incorporating security technologies, training employees and buying cyber insurance. It is also important to consider steps you can take in negotiating, drafting and renewing your company’s contracts to prevent and avoid data breaches.

Pre-Contract Due Diligence

When you are considering using a third-party vendor that may house or otherwise have access to protected data, you should conduct due diligence in determining any security issues that should be resolved through the contracting process. It is effective to address this issue while you have maximum leverage before the contract is signed. You may want to require limited access to your systems or network, or even have a specific person with the vendor assigned to safeguard confidentiality and integrity.

Contractual Agreement

It is imperative that the contract clearly states who owns the information. Depending on your industry, the vendor may have full control over the data and have notification obligations under the law if it leaves its control, but you want to maintain ownership of the information. You may also want to include contractual language that:

  • limits how the data may be used
  • requires the vendor to return or destroy all of the data in the vendor’s possession upon termination of the contract
  • allows you to request confirmation that certain certifications or third-party reviews of the vendor’s system has occurred
  • provides for the encryption of data when it is being transferred or when not being used
  • requires background checks on employees with access to your protected information
  • provides that security updates and patches will be applied as necessary
  • sets forth any additional security measures that may be necessary (such as security code or card required for access to the data center)

The above are the initial considerations for protecting your digital data in vendor contracts. Our next blog will continue discussing this topic and cover more in-depth contractual provisions to include in your vendor agreements, so please check back.

To ensure that your vendor contracts provide you with the most protection from liability available, contact Leslie S. Marell to schedule an appointment. Our office is located in Torrance, California, but we proudly serve businesses of all sizes from all over the country.

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Online Click-Through Contracts

Have you ever read through all the terms and conditions of an online contract before clicking the “I agree” button? For most people, the answer is no and they would likely be surprised to find out what they are agreeing to. In fact, there are reports of various websites sticking in clauses where the user actually agrees to give up their rights to their first-born child just to see if anyone catches it! As predicted, many people agreed to it.

It is hard to be too judgmental, however, because many websites have online terms of use agreements that are ridiculously long. It has been estimated that if you read all of the terms of the privacy policies you are presented with over a one year period, it would take you more than 200 hours! It seems that clicking without reading has become a common occurrence in our world of technology. However, this can cause big problems when a dispute arises. Many online agreements actually waive the ability to file class action lawsuits and compel all disagreements to be resolved through arbitration. It is also common to see various warranties disclaimed and binding the user to a certain jurisdiction and venue for legal actions.

It is important to distinguish between click-through (or click-wrap) contracts and browse-wrap agreements. Click-through terms are ones in which the user specifically consents to them. By contrast, a browse-wrap agreement does not require the user to specifically agree to the terms , and the user must affirmatively click a hyperlink to access and actually see the terms… To learn more about browse-wrap agreements, please read our blog titled “Online Contract Formation: Are your “Terms of Use” binding?”

Click-through or click-wrap agreements are the preferred method for making your contract enforceable through your website or mobile app. They have been recognized by several courts as being valid and enforceable contracts because the user has provided explicit assent.

In general, courts have been hesitant to enforce browse-wrap agreements. Courts have reasoned that users are more likely to be apprised of all terms when they are forced to affirmatively accept those terms that are placed in front of them. However, this does not completely discount browse-wrap agreements. When a website operator can show that the user had actual or constructive notice of the terms, those terms might then be considered binding on the user.

It is also advisable to keep an eye on the Federal Trade Commission’s attempts to standardize mobile app terms. The FTC is aiming to make mobile privacy disclosures and agreements so they can be easily read and understood.

If you have questions regarding business law matters, contact us today to schedule an initial consultation. Leslie S. Marell has been practicing business and commercial law for over 25 years. She is established in private practice and has extensive legal experience counseling companies in the areas of business contracts and transactions, purchasing, sales, marketing, computer and technology law, employment law and day to day legal matters. Let us provide your company the advice and guidance you need.

 

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Should Your Contract be Fully Integrated?

When you have a written contract and a dispute arises, often one party will claim that the contract meaning is different than what it says. In an effort to prove their claim, the party typically attempts to submit external evidence to alter or add to the agreement. However, Article 2 of the Uniform Commercial Code (UCC), which is applicable to all contracts for the sale of goods, prevents the use of external evidence where the parties executed a fully integrated contract.

A fully integrated contract is one that provides that it is the “final written expression” of the parties’ agreement and no prior discussion or agreement can be invoked to add or change the agreement A fully integrated contract will contain a clause entitled “Entire Agreement” or “Integration” and usually appears at the end of the document.

The Seventh Circuit recently tackled this issue in the case of Druckzentrum Harry Jung GmbH & Co. KG v. Motorola Mobility, LLC, 774 F.3d 410 (December 18, 2014). The Druckzentrum contract contained a provision that stated the contract was the full understanding of the parties and it superseded everything else. However, Druckzentrum wanted to present extrinsic (outside) evidence as proof that the parties intended there would be exclusivity, even though the contract contained no such mention of exclusivity.

In applying § 2-202 of the UCC, the Seventh Circuit determined that the use of extrinsic evidence to explain or enhance the contract was prohibited. Druckzentrum argued that its extrinsic evidence fell within the exception in § 2-202(b), which permits evidence of consistent additional terms. The Court ruled that the exception does not apply if the contract is states that it is wholly integrated.

Druckzentrum made an additional attempt to fit within the § 2-202(b) exception by arguing that the contract was not fully integrated since it included other documents by reference. However, the Seventh Circuit held that because the contract specifically incorporated certain documents, any documents not specifically incorporated where necessarily excluded. As a result, the court ruled against Druckzentrum on summary judgment.

IMPORTANT TAKEAWAY:

Most business contracts contain entire agreement clauses. When negotiating and signing your contract, it’s important to ensure that all deal points discussed be included into the final contract and that the language accurately reflects the deal. Otherwise, you will have a difficult time introducing evidence of other terms or conflicting terms if a dispute arises.

To learn more about fully integrated contracts or how we can assist you with other business-related matters, contact Leslie S. Marell today.

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Determining the “Materiality” of a Breach of Contract

It is likely that your business contract contains a provision that grants the customer the ability to terminate the agreement without payment of penalties in the event of a “material breach.” Unfortunately, many contracts fail to identify what constitutes a material breach. Without this clarification in the contract, the determination must typically be made by a judge when a dispute arises.

What does the court consider “material breach?” There is no standard test or bright-line rule to guide the court in making this decision, so you never want it to get that far. It is far better to protect both parties’ interests through careful negotiations and planning when drafting the contract. Below are a few considerations to include in a contract to help protect your company in the event of a material breach:

  • Set forth the exact performance-based termination rights. For example, the right to terminate the contract may be triggered if a service provider fails to meet a specified service level for three consecutive months. The more specific you can be in defining what constitutes a material breach, the better.
  • Define the damages available when a material breach occurs. If liquidated damages are used, remember that they will only provide an incentive to perform if they are set at levels equal to the value and cost of the services. In other words, make sure it is not cheaper to pay the liquidated damages than it is to deliver or perform. You want the remedies available to motivate performance, not provide a cheaper way to get out of the contractual obligations.
  • Reserve the right of election. You should also reserve the right to elect a remedy other than monetary relief if a breach occurs. This allows you to prevent the service provider from curing nonperformance by paying the liquidated damages. Examples of non-monetary remedies include the right to terminate the contract, injunctive relief and specific performance.
  • Conduct the relationship consistent with the contract terms. It is important to enforce or preserve your rights under the agreement. If you allow an exception for nonperformance, you must explicitly affirm your right to relief while simultaneously disclaiming that right for the specific circumstance. In other words, you want to provide written notice to your supplier that while you are permitting an exception in this one situation, you are not giving up your rights to enforce on time performance in the future. It is difficult to rely on the contractual breaches as the basis for contract termination if you have a history of turning a blind eye.

To learn more about how to effectively draft contracts or how we can assist you with other business-related matters, contact Leslie S. Marell today.