All posts by Leslie Marell

man wearing a suit sitting in a table ripping up a contract

Simple Steps for Preventing Contract Disputes

As a seasoned business attorney, I can tell you that a significant number of contract disputes can be prevented with strategic pre-planning during negotiations and drafting of the document. Regardless of the size of your business or your level of expertise, it is common for the same underlying issues to lead to litigation over contracts.

Make sure the contract reflects the Deal

When parties are entering into a contract, they typically want to get the transaction completed ASAP so they can get started on the new venture. Frequently, one party gives the other its “form contract” without ensuring that the deal points agreed upon have been included in the document. The perception is that contract bears little relationship to reality and is only useful if the parties go to court. However, this thinking is exactly what gets people into trouble.  Form contracts are useful tools and outline your company’s position. But, they must always be modified to include the deal points and agreements. If those deal points are not included, they will be considered outside of the scope of the agreement and not binding obligations.

Be clear about performance

The contract should be specific about deadlines that must be met and the performance requirements. Not only does setting forth the time-for-performance protect you by helping ensure you obtain the product or services in a timely manner, it may also provide you the ability to get out of the contract if the deadlines are not being met. Thus, use exact dates and avoid any general or vague time periods.

Establish expected level of quality

Your written agreement should set forth the level of quality that is expected, the criteria for meeting that quality level, and who will determine if it has been met or not. The contract should outline what will happen if the expected level of quality is not met and who bears the burden of rectifying the problem (within a certain period of time).

Escape clauses

It’s always important to include an escape clause in the contract. If one of the parties can no longer continue to perform under the contract or the product, equipment, services or subject matter is no longer needed, an escape clause can provide a way to mitigate the damages and avoid disputes and litigation. For example, if a party needs to get out of the contract, it can pay a certain amount of money for work in process, materials on order, and the like as a type of agreed upon consequence.

In sum, don’t rush into a contract even though your internal customer will often push you to do so.  Prepare a document that reflects the deal points. Draft a strong agreement that is clear on the specifics and deals with potential issues that may arise. This can save you a significant amount of time and money, as well as preserve the relationship with the other party.

If you need assistance negotiating and drafting a contract or you have questions regarding your company’s contractual needs, contact Leslie S. Marell for help. We serve as general counsel to clients who do not require, or choose not to employ, a full-time lawyer in-house. Call today to schedule your initial consultation.

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Will the SEC Target Your Company’s Confidentiality Agreement?

The Securities Exchange Commission (SEC) has been ramping up its review of confidentiality provisions that affect its enforcement efforts and on the rights of whistleblowers. In fact, the agency has even requested copies of several companies’ employment contracts, non-disclosure agreements, and other documents that have been signed by employees over the past several years. The SEC is looking for any agreements that have a “chilling effect” on an employee’s ability to bring allegations of wrongdoing to its attention.

On April 1, 2015, the SEC filed an enforcement action against KBR, Inc. and directed at the contractual provisions it believes discourages whistleblowing activity. KBR used a form confidentiality statement in internal investigations pursuant to the company’s Code of Business Conduct Investigation Procedures Manual. The confidentiality statement, which witnesses were required to sign at the beginning of an interview, contained the following language:

I understand that in order to protect the integrity of this review, I am prohibited from discussing any particulars regarding this interview and the subject matter discussed during the interview, without the prior authorization of the Law Department. I understand that the unauthorized disclosure of information may be grounds for disciplinary action up to and including termination of employment.

The SEC alleged this language violated SEC Rule 21F-17(a) which provides that “[n]o person may take any action to impede an individual from communicating directly with the Commission staff about a possible securities law violation, including enforcing, or threatening to enforce, a confidentiality agreement.” The goal of Rule 21F-17(a) is to promote the reporting of potential unlawful conduct to the SEC.

This action was resolved by an Order whereby KBR consented to revise the language and to pay $130,000. It is important to note that there was no evidence that the language at issue had ever deterred or prevented an employee from making a report to the SEC or others. The SEC merely reasoned that the language had a chilling effect on whistleblowing efforts.

KBR consented to settling this matter without admitting or denying the charges. It also agreed to amend its confidentiality agreement by using the following language approved in this case by the SEC:

Nothing in this Confidentiality Statement prohibits me from reporting possible violations of federal law or regulation to any governmental agency or entity, including but not limited to the Department of Justice, the Securities and Exchange Commission, the Congress, and any agency Inspector General, or making other disclosures that are protected under the whistleblower provisions of federal law or regulation. I do not need the prior authorization of the Law Department to make any such reports or disclosures and I am not required to notify the company that I have made such reports or disclosures.

Takeaway Points

The SEC is focused on taking enforcement action against company contracts that contain language that have a chilling effect on whistleblowing. Your company should take immediate action to review your employment contracts, confidentiality agreements and other types of agreements to determine if they contain language that the SEC may find has the effect of impeding an employee’s ability to report possible violations to government agencies.

This case gives businesses some insight as to what the SEC considers as acceptable language in confidentiality agreements. Of course, this language may not be applicable in every situation and where the language is placed may prove to be important at some point, but for now the KBR Order is the only example we have of language that the SEC deems acceptable.

If you have questions or concerns regarding the language used in your employment contracts, 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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If you don’t Understand your Contract, It can be Costly!

You have probably heard that is it important to thoroughly read a contract before you sign it. However, reading it is only half of it – you must also make sure you understand your rights and obligations under it. Whether this means you confer with an attorney or read the contract five times over, it is essential.

Joe Wickline, a coach for the University of Texas football team, may have learned this lesson the hard way. Texas University hired Wickline in 2014 as its offensive line coach and offensive coordinator. When Wickline was hired, he was still under contract with Oklahoma State University (OSU). The OSU agreement permitted Wickline to leave without penalty, but only if certain requirements had been met. OSU believed that Wickline had not met the required conditions for leaving and filed a breach of contract lawsuit against Wickline seeking $600,000 in damages. Wickline filed a countersuit against OSU in a Texas court.

Wickline’s countersuit was dismissed by the Texas judge due to a provision in the contract that required all litigation to be filed in Payne County, Oklahoma. The lawsuit filed by OSU for breach of contract was filed in Payne County and is still pending. In short, OSU seeks to prove that Wickline is not controlling the play calls for the Longhorns. If this can be established, OSU will recover the damages it seeks because Wickline will have made a lateral move to Texas and failed to take a promotion with “play-calling duties,” as required to avoid penalty in his contract with OSU. Thus far, the University of Texas has not been named as a defendant in the lawsuit.

It remains to be seen whether Wickline met the requirements for terminating his OSU contract, but his case demonstrates how costly it can be if you do not understand your rights and duties under a contract.

If you are entering a contract and you are not sure you fully understand all of its terms and conditions, let Leslie S. Marell assist you. We serve as general counsel to clients who do not require, or choose not to employ, a full-time lawyer in-house. Call today to schedule your initial consultation.

 

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How Does the CISG Differ from the UCC?

Hopefully you have read our previous blog titled “Contracts for the Sale of Goods & the CISG.” This blog will focus on some of the key differences between the United Nations Convention on the International Sale of Goods (CISG) and the Uniform Commercial Code (UCC). When the CISG is applied, the parties often make inaccurate assumptions regarding the existence of a contract between them. For example:

  • The contract may be declared invalid due to its indefiniteness if neither the price nor a formula for calculating the price is set forth. This can be fatal to the contract under the CISG but not under the UCC. If the court must determine the price under the CISG, it will declare the price to be the price charged at the time of conclusion, not the reasonable price standard at the time of delivery that is applied under the UCC.
  • Under the CISG, a revocable offer becomes irrevocable when the offeree mails its acceptance or if the offeree relies on the offer. This gives rise to a potential claim for full contractual damages rather than simply a reliance interest or other quasi-contractual or equitable remedy.
  • If the offer sets a deadline by which it must be accepted, under the CISG the offer is irrevocable until that date. In contrast, the UCC provides that an offer is revocable until it is accepted, with certain strict exceptions.
  • The CISG, in contrast to the UCC, doesn’t require the contract to be in writing or meet any other requirements as to form. In fact, the CISG allows a contract to be proved by any means, including witness testimony.
  • Under the CISG, if the offer and acceptance do not match perfectly (which often occurs when each party uses their own standard forms), the acceptance will be treated as a counter-offer which is often deemed accepted by performance of the contract. This can result in the seller’s terms being applied to the purchase and sale under the CISG, which should be motivation for buyers to opt-out of the CISG. Under the UCC, only the terms that both parties have agreed to will be included in the contract.

Finally, U.S. businesses have a better understanding of what to expect under the UCC because there is extensive case law interpreting it. To ensure that the UCC applies to your international contracts for the sale of goods, make sure your contracts specifically and explicitly exclude the CISG.

To ensure that your contract provides you with the most protection 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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Contracts for the Sale of Goods & the CISG

If you have not heard of the United Nations Convention on the International Sale of Goods (CISG) and you conduct business in different countries, you need to read this blog! Many American businesses are shocked when they learn that the CISG and not the UCC may be the applicable law to their contracts when dealing with out of country suppliers/ customers. The CISG has been ratified by the United States, making it qualify as American federal law (and therefore pre-empting state law). Thus, unless the CISG is specifically excluded from a contract that falls within its scope, it (and not the UCC) is the applicable law.

What type of contract falls within the CISG’s scope? In short, any agreement for the sale of goods between parties who have their place of business in different countries that are parties to the CISG (CISG Parties). Determining a parties “place of business” is not always easy. For instance, a US buyer that enters a contract for goods manufactured overseas with a distributor incorporated and with offices in the US may be within the CISG’s scope. Additionally, the CISG can apply in the domestic sale of goods if the parties’ places of business are not in the same country. This would occur in the case of an agreement between a US buyer and a foreign seller for goods to be delivered from the seller’s US store or warehouse.

In determining if a contract is for the sale of goods, it does not have to be solely for the sale of goods. The agreement must concern “predominantly” the sale of goods and not services. This means that an agreement for the sale of goods to be manufactured can fall within the CISG’s scope. An exception can occur if the buyer supplies a “substantial” portion of the materials necessary to manufacture the goods. Additionally, the sale of stocks, investment securities, negotiable instruments and money do not fall within the scope of the CISG.

If the parties want to ensure that the CISG does not apply to their contract, they must include an express statement excluding its application. The statement must be more than saying the contract will be governed by a specific state’s law because the CISG is considered state law. Thus, the contract should specifically declare that the CISG does not apply to the contract.

If the parties wish to opt-out of certain provisions of the CISG but not others, the contract must specifically outline the partial opt-out terms. Also, if the parties to a contract for services or for a mix of goods and services wish to opt-in for the CISG to be applied, they are generally allowed to do so by specifically stating so in the contract.

For more information regarding how the CISG differs from the UCC, please read our next blog or contact Leslie S. Marell to schedule your initial consultation.

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Contracts: Reading, Understanding & Breach

You have often heard that you should read a contract before you sign it. While this is true, the better advice is to make sure you understand the contract before you sign it. Many attorneys love to use fanciful legal jargon that can make it difficult to fully understand the terms and conditions in the contract. As a result, a breach of contract action is often the result of inadvertent failures because the party either failed to read or understand its obligations.

Breach of Contract

The most common type of breach of contract disputes is one that looks back at past actions or inactions. For example, a party failed to perform a duty required by the contract or the party took an action that is prohibited by the agreement. It is important to note that either action or inaction may be the basis of a breach of the contract lawsuit.

It is also possible for a breach to be forward-looking. This is often referred to as an “anticipatory breach” and it occurs when one of the parties either states its intention not to perform, or more frequently, does something to indicate that it will not perform its contractual obligations in the future. Although the time for performance has not arrived, the expression of the party’s intent not to perform can be sufficient to constitute a present breach of contract.

Responding to a Breach

If you are the non-breaching party, you should immediately consider how to minimize your damages. This is crucial because all parties to a contract have the duty to mitigate damages. In other words, you can’t sit back and let your damages mount if there are steps you can reasonably take to lessen them.

Before you suspend your own performance under the contract in response to the other party’s breach, you should have a knowledgeable business attorney review the agreement. It is important to determine whether the other party’s breach is a material or non-material breach. You should also gather and maintain all documentation and other evidence that the breach of contract occurred and your damages suffered as a result.

Litigating Breach of Contract Claims

Lawsuits can often be avoided with open communication. When a breach first occurs, having a clear discussion with the other party will often lead to you finding a way to cure the breach and move forward – saving everyone time and money.

If the dispute cannot be resolved, you will want to review the contract to determine if it has a dispute resolution clause which determines how the dispute will be resolved. You will also want to confer with your attorney regarding any clauses that govern what damages are recoverable in the event of a breach.

If you are entering into a contract and you need assistance understanding what the terms and conditions of the agreement actually mean, call Leslie S. Marell to schedule an initial consultation. She has been practicing business and commercial law for over 25 years. Leslie 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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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.