Category Archives: Contracts

Business, Contracts

How to Expedite the Legal Review

When you are negotiating a contract with another party, it can be a complex and lengthy process. Below are a few tips to help expedite the legal review process before you even involve your attorney:

  • Before you give the other side a copy of the contract, talk over the major issues. Create a checklist of issues to discuss so you can determine where the starting point is for both sides before the negotiations even begin.
  • Once you discover the issues where the parties disagree, try to negotiate and reach an agreement on as many of them as possible. The more you can work through before the attorneys get involved, the better off you are likely to be. Even a “legal” clause such as the warranty provision should be discussed. Talk through what the warranty includes, how long it will last, and the deadline for fixing the problem.
  • Wherever possible, you’ll want to start working with a standard template; However you can’t rely on a standard template and simply fill in the blanks. Remember, this is a unique transaction that should include the deal points you have agreed upon. You will have to make revisions to any template to conform to the deal.
  • If the other party is making significant changes to the contract, don’t be afraid to ask questions about why they are being made. Asking these questions will provide you with information about the other side’s concerns, which is critical in reaching an agreement.
  • Discuss the business aspects of all clauses, even the “legal” or standard clauses. For example, if the supplier insists on inserting a limitation of liability, ask what the supplier expects it should be responsible for if their product is defective and it’s in the field.
  • Get creative in finding solutions to avoid problems, or minimize their impact. For example, in the purchase of capital equipment, you might discuss some form of limitation of liability in exchange for the supplier providing no charge monthly preventative maintenance and on site spare part consignment. Talk in real world terms with real world approaches to heading off the problem of faster resolutions.

Most importantly, don’t simply “hand off” the contract to your attorney. Schedule a meeting with your lawyer to discuss what has been negotiated between the parties and the reasons for the other party’s exceptions. You should stay engaged in the process and encourage your counterpart to do the same.

If you follow the above tips, it will reduce the time involved in the legal review process and help ensure you achieve a positive result. When you are ready to involve an attorney, contact Leslie S. Marell.

Contracts

Why your Contract Should Contain a “Defense Clause”

A “defense clause” is a provision that establishes the duty to defend the other party to a contract in certain circumstances, such as preparing for and defending a lawsuit. It is commonly found in an agreement in conjunction with indemnification clauses and hold harmless provisions.

The party that has undertaken the obligation to defend is given control over the defense. In contrast to indemnification, the duty to defend is usually triggered when there is a claim, not after a judgment has been rendered or loss has been established. Thus, indemnification and the duty to defend are two separate provisions creating distinct rights and obligations.

Agreeing to the duty to defend is a significant undertaking. There is a significant amount of time, money and effort that must go into preparing for and defending litigation. The defending party can hire its own lawyer to handle the trial for the party being defended, which can be a downside to agreeing to a defense clause. The specifics governing how counsel will be selected and who has authority to settle the claim should also be detailed in the defense clause.

Some parties, especially those that are self-insured, prefer to retain control over their own defense. As such, they try to negotiate a defense clause out of the contract. If you want to retain control over your own defense at trial, avoid the defense language and focus on the indemnification and hold harmless provisions.

When you are negotiating a contract, it is wise to retain counsel early in the negotiation process to help ensure the agreement is drafted to meet your needs and protect your best interests. Indemnification, hold harmless and defense clauses significantly impact the degree of your liability. Leslie S. Marell can help you understand the extent to which you are taking on or shifting risk in your agreement. To ensure that your contract provides you with the most protection from liability available, contact us to schedule an appointment. Our office is located in Torrance, California, but we proudly serve businesses of all sizes from all over the country.

 

Contracts

Indemnification Clauses

Most contracts contain indemnification clauses, but few parties take the time to read them or fully understand what they mean. Although the language used may appear to be “boiler plate” or standard contract language, an indemnity clause can be a significant part of the agreement that you want to negotiate for your benefit.

An indemnification clause imposes an obligation on one party (or both parties in certain circumstances) to compensate the other party for any loss or damages outlined in the provision. The compensation provided for in an indemnification clause is separate from other contractual damages. A common form of damages provided for in an indemnification clause is the loss associated with one party having to defend a lawsuit filed by a third-party.

By way of example, if Car Seller enters a contract with Part Maker, Car Seller may seek to be indemnified by Part Maker if the part is found to be defective. Thus, if Car Seller is sued by a driver that was injured by the defective part, Part Maker could be held liable for Car Seller’s reasonable attorney’s fees and costs incurred in defending the lawsuit.

Indemnification clauses can be written very narrowly so the indemnification obligation only arises under specific circumstances, or it can be written more broadly so the indemnification obligation arises for any loss that results out of an event resulting from the agreement. Additionally, the parties covered by the indemnification clause can be narrowly or broadly defined. It may state that only the entity is indemnified, or it may include the entity’s officers, directors, trustees, employees, agents and affiliates. Finally, the indemnity may set forth a higher standard of “gross negligence” instead of “negligence.”

There are numerous factors to be considered in indemnity clauses. Don’t assume the clause protects you because it appears to be standard language. Contact Leslie S. Marell to discuss indemnification and to ensure that you are protected before you sign a contract.

 

Contracts

Electronic Contracting: Think Before Hitting “Send!”

It is becoming a common practice for parties to use email to negotiate, review and revise contracts. While the internet makes it convenient and quicker, it can also inadvertently lead to liability. Courtrooms across the country are seeing an increase in the use of “electronic evidence.” You don’t want an opposing party to use your email exchanges as evidence of (or to disprove) the existence of a contract.

Pursuant to the Uniform Electronic Transactions Act of 1999 which has been adopted in all 50 states, a legally binding contract can be formed by use of electronic records. Electronic communications, including email, and even text messages, can be used to form binding legal contracts if the individuals have actual or apparent authority to do so. The essential requirements of a contract must still be met for the agreement to be enforceable, including an offer, acceptance and consideration exchanged between the parties. If the electronic evidence clearly establishes that these basic requirements have been met, it may be sufficient to prove the parties intended to be contractually bound and that a valid contract was formed.

How do you protect yourself when conducting contract negotiations via email? It is imperative that you are clear and succinct in outlining your intentions. All of your employees should receive detailed training regarding your business’s policies regarding electronic correspondence and to be careful in email to avoid terms such as “offer” or “accept” and to avoid unconditional “promises”. If you do not wish certain employees be able to form binding contracts by email, you should require that a prepared, blanket disclaimer paragraph be automatically inserted into every email that is sent from such employees. The disclaimer should include a statement that the sender of the email does not have authority to legally bind the company and any commitments on behalf of the company must be confirmed by either the appropriate department (such as purchasing) or the person’s manager. You should also include a statement that your business does not intend to be bound by an electronic contract and that all electronic correspondence is considered non-binding until the agreement is signed by the parties. Finally, if the other party gives you an indication that they are relying on your emails as forming a contract, you should take immediate action to set them straight. The quicker you clear up any confusion or misunderstandings, the less likely you are to be held liable.

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

Contracts

Do You Need to Update Your Vacation Time and Sick leave Policies?

Employers should be aware that wage and hour issues are often the basis of employee lawsuits. As a result, it is important for employers to ensure that their employee handbooks are updated, including policies regarding vacation time and sick leave.

Vacation Time

An employee is typically not entitled to paid vacation unless the employer has agreed to provide it. Although this seems like a simple rule, many disputes between employers and employees still arise.

An employer that provides vacation benefits to its employees must ensure that its policies comply with the law. For instance, an employer in California is not allowed to implement a “use it or lose it” policy. Once your employees have earned their vacation pay, you cannot take it away from them. However, employers are permitted to set a limitation on the amount of vacation pay that can accumulate. While you can set a maximum amount for the total amount of vacation pay that can accrue, you cannot require your employees to use the vacation time in the same year it is earned. It is important to have a knowledgeable attorney review your policies to verify they comply with the applicable state law.

What happens when an employee has accumulated vacation pay and is terminated? Under most circumstances, the employer must pay the terminated employee for the vacation pay that has accrued as wages at the employee’s last rate of pay.

The most crucial step in employer’s avoiding litigation over vacation pay is to draft a vacation policy in compliance with the applicable law. It should cover a variety of topics including eligibility requirements, rate paid, caps on accrual amount and whether approval must be obtained to use vacation time.

Sick Leave

In September of this year, California’s governor signed a new sick leave law which becomes effective in July. The new law requires the majority of California’s employers (public and private sectors) to provide their workers with at least three paid sick days per year. Employers can use the accrual method or give the sick days in a lump sum. Employers are allowed to limit the accrual of paid sick days to 48 hours (six days), as well as limit the use of paid sick days to three per year. Connecticut, the District of Columbia and 16 cities, including New York City and Philadelphia have enacted sick leave laws. It appears that new sick leave laws are on the horizon in other states as well. As a result, as the laws change in your state, it is important to have a lawyer review your policies to determine if they comply with the changes.

Sound confusing? It can be, so don’t procrastinate in getting help. Contact Leslie S. Marell for assistance in updating your employee handbooks as well as your employment agreements.

Business, Contracts

3 Types of Agreements that Protect Your Proprietary Information

Does your business have an intangible asset that you need to protect from competitors? It could be an idea, customer list, computer code or other comparable assets. It is essential that you take steps to safeguard the aspects of your business that sets it apart from others. If you don’t do it now, it could mean costly litigation for you in the years to come.

How do your protect your intangible assets? The answer depends upon the unique circumstances surrounding your business, but the following are a few types of contracts that generally can be beneficial:

  • Intellectual property (IP). You might be surprised at what types of assets you can protect. Most businesses understand that they need a patent to protect a new invention, but you can also use a trademark to protect the source of your goods or services. Creative works can be protected by a copyright. Don’t assume you cannot protect your intangible asset. Confer with us and determine the best strategy for safeguarding your IP.
  • Non-Disclosure agreement. It should be mandatory for anyone who has access to your confidential information to sign a non-disclosure agreement. This includes your employees, independent contractors, vendors and customers. This type of agreement can limit when and how your business’s sensitive information is shared. It can also set forth your company’s available legal remedies if the contract is breached.
  • Non-Solicitation agreement. All of your main employees should execute an agreement preventing them from soliciting your business’s customers for a set period of time after they leave your employment. This type of agreement should also include a provision that your business is the owner of any IP developed while the person is working for your entity. Be aware, however, that these agreements must be carefully crafted to be enforceable and in California, they are unenforceable.

It is additionally wise to require all of your employees to password-protect their company computers with passwords, which are updated regularly. You should limit access to your confidential data to only those workers who must have it to properly perform their job duties. Your business should also back-up its digital data routinely.

If you need assistance creating any of the above contracts 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.

Business, Contracts, Intellectual Property

5 Important Tips for Your New Business Venture

When you are starting a new business, it is easy to feel overwhelmed by all of the decisions you have to make. The decisions you make now can have lasting consequences, so it is important to get them right. Below are five important tips to help ensure that your new business gets off to a successful start:

Legal Structure

There are several different types of business entities to choose from, each with its advantages and disadvantages. To learn more, please read our blog titled “Which Legal Structure is Best for Your Start-Up?” It is important for you to confer with a business attorney to ensure you select the legal structure that is most beneficial for your business.

Written Contracts

New business owners often fall prey to relying on oral promises that aren’t fulfilled. Getting your agreements in writing is the best way to protect your interests. This includes creating a written agreement between the founders of the business which outlines each owner’s percentage of ownership and how the daily business decisions will be made.

Intellectual Property

Intellectual property can include anything from your company name, to its logo, to the type of products you sell. All business owners should take the initiative to legally protect their intellectual property. If your entity fails to obtain the proper patent, trademark or copyright, it could result in you have no legal recourse if another party infringes on your rights. One important step in protecting your private information is to require all employees to execute a non-disclosure agreement.

Employees

There are a wide variety of laws governing an employer’s relationship with its employees. It is imperative that you educate yourself regarding the laws, rules and regulations that apply to your industry and your specific business.

Get help

When your business is first starting out, you will likely be tempted to try to save money and handle things on your own. Unfortunately, this approach can end up costing you significantly more than the cost of retaining a professional. One mistake could be the end of your business before it even gets off the ground. Don’t let that happen – get the legal assistance you need.

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.

 

 

Business, Contracts

Does Your Employee Handbook Properly Cover Overtime Pay?

Employers are required to pay workers a minimum wage set by law for all hours worked. If an employee is non-exempt, they must be paid suitable overtime pay right for any additional time worked. Overtime pay may seem like a simple topic, but it can get more complex when applying it in real-life situations.

Initially, you must determine whether your employees are exempt, which means they are not entitled to receive overtime pay for extra hours worked. Examples of employees exempt from receiving overtime pay include:

  • White Collar. The term “white collar” has been used to describe certain professionals that are exempt from overtime pay. To qualify for the white collar exemption, an employee’s job responsibilities must meet certain conditions and they must receive a minimum weekly salary, as dictated by law.
  • Executives. Managers who supervise the work of a minimum of two other full-time employees fall within the executive exemption. An executive employee typically has the power to hire and fire other employees.
  • Administrators. If the employee’s primary job is to perform office work, the administrative exemption applies. This type of employee’s job relates to the supervision, management or operation of the company. An administrator often has decision-making authority on behalf of the business.
  • Professionals. A professional exemption applies if the employee has obtained an advanced degree or has acquired specialized knowledge by attending extended schooling.
  • Outside sales. Employees whose main job involves making sales calls which require the employee to routinely be away from the employer’s place of business may be exempt from receiving overtime pay.

The above list is not exhaustive and there may be other exemptions that apply, so employers should consult with an experienced employment attorney to verify that the appropriate exemptions are being applied and that your business is in compliance with the laws governing overtime payment.

If you need assistance creating or updating your employee handbook to deal with overtime pay or any other employment law matter, 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.

Contracts

PART TWO: INDEMNITY

BRIEF REVIEW

Indemnify is defined in Black’s Law Dictionary as follows:  “To make good; to compensate; to make reimbursement to one of a loss….”

In an indemnity clause, one party (the “indemnitor”) agrees to defend, pay all costs of the lawsuit and pay any judgment resulting from the lawsuit if the other (the “indemnitee”) is sued by a third party.

A key feature of an indemnity clause is that it creates an obligation that may not otherwise be imposed on a party by law.

For example, your contractor carelessly leaves some equipment lying around your facility.  A visitor trips over the equipment and injures herself. She sues you because the injury occurred on your property, even though it was the contractor’s act, not yours, which led to the injury. If there was an indemnity clause in the contract between you and your contractor, you could seek to have the contractor reimburse you for the costs of defending that lawsuit due to the contractor’s acts and for monies you might have to pay to the injured party.

Without an indemnity clause in your contract, you would be solely responsible to pay the costs to defend the lawsuit and the monies payable to the injured party.

In its purest form, indemnity is a means of shifting the ultimate responsibility for payment to the party who caused the injury.

 

ARE YOU OVER-REACHING?

Why are indemnity clauses the source of so much contention?

I believe the main reason is that an ever increasing number of customer proposed indemnity clauses go well beyond requiring the Seller to be responsible for its (the Seller’s) negligence and wrongdoing. They require that the Seller be responsible for not only the Seller’s acts and negligence but for its Customer’s and any third party’s negligence and wrongdoing as well.

The following is a typical example of such a clause:

Seller shall defend, indemnify and hold harmless Customer, its officers, directors, agents and representatives from and against any and all claims, suits, losses, penalties, damages and associated costs and expenses (including attorney’s fees, expert’s fees, and costs of investigation) that are caused in whole or in part by: (a) any breach by Seller of this Agreement or (b) any negligent, or intentional act, or omission by Seller, its employees, officers, or agents in the performance of this Agreement.

(NOTE:  Underlined and bolded language are provided for emphasis).

The Seller’s major objection to this clause is found in the words “caused in whole or in part by” on line 4. This language means that the Seller will be financially responsible notonly for claims resulting from the seller’s breach or negligence; the provision is so broadly written that the Seller will also be responsible for claims attributable to the breach or negligence of the Customer and anyone else.

In other words, a frequent source of contention is an over-reaching clause that makes the Seller responsible not only for it’s negligence and wrongdoing but everyone else’s as well.

 

A SIMPLE LANGUAGE CHANGE

A “fair” indemnity clause does not seek to avoid a party’s responsibility for its negligence or actions. Instead, it seeks to limit the extent of liability to that which may be attributable to its negligence or wrongdoing.

A Seller will want to limit its indemnity obligations to behavior over which it has control. Failing that, a Seller will want to limit it obligations to behavior about which it can conduct adequate due diligence.

A narrower version of above clause might say:

Seller shall defend, indemnify and hold harmless Customer, its officers, directors, agents and representatives from and against any and all claims, suits, losses, penalties, damages and associated costs and expenses (including attorney’s fees, expert’s fees, and costs of investigation), but only to the extent caused by :  (a) any breach by Seller of this Agreement or (b) any negligent, or intentional act, or omission by Seller, its employees, officers, or agents in the performance of this Agreement.

Note the addition on line 4 of the language but only to the extent caused by. These words change the meaning of the clause to apportion the Seller’s responsibility in relation to its negligence or wrongdoing.

Interestingly, the words “to the extent caused by” will frequently resolve the problem of overly broad indemnity clauses.

 

 IS YOUR INDEMNITY CLAUSE ENFORCEABLE? 

Many states have statutes or case law prohibiting agreements that indemnify someone for his own negligence when the negligence is in connection with construction contracts or contracts that affect the public. Other states have laws that prohibit these agreements in connection with residential leases.

In contracts where a party can be indemnified for its own negligence, the indemnity clause must state so in clear and unequivocal language. For example, a clause stating that the Seller will be responsible for all damages arising directly or indirectly out of the performance of the contract may likely not be considered clear enough to cover the negligence of the Buyer.

 

 ANOTHER (FAMILIAR) PROBLEM

There is yet another problem a Seller will have with the above clause even after adding the qualifying language “but only to the extent caused by.”

The clause goes well beyond making the Seller responsible for third party claims against the Customer. It gives the Customer the right to recover from the Seller any consequential damages the Customer incurs, such as loss of business, profits, reputation, and the like.

In other words, we’re back to the issue of how to fairly allocate liabilities.

The Seller will want a limitation of its liabilities such as the following:

In no event will Seller be liable for any lost profits, loss of business, or other consequential damages arising out of any breach of its obligations under this Agreement. Seller’s maximum liability hereunder shall not exceed the amount paid to Seller.

The Customer will object to the limitation of liabilities in the second sentence, particularly as it applies to damages for personal injury, death or property loss/ destruction caused by Seller’s negligence or wrongdoing.

One approach to resolving this issue would be to narrow the Seller’s responsibility to claims relating to personal injury, death and property loss/ damage due to the Seller’s negligence or wrongdoing and doing so without a maximum cap on the dollar amount. A revised clause using this approach would read as follows (see bolded, underlined language):

Seller shall defend, indemnify and hold harmless Customer, its officers, directors, agents and representatives from and against any and all claims, suits, losses, penalties, damages and associated costs and expenses (including attorney’s fees, expert’s fees, and costs of investigation) for personal injury, death or property damages but only to the extent caused by :  (a) any breach by Seller of this Agreement or (b) any negligent, or intentional act, or omission by Seller, its employees, officers, or agents in the performance of this Agreement.

 
Contracts

THE CONTENTIOUS WARRANTY CLAUSE

Ask any experienced contracting professional to name one of the most contentious clauses in a negotiation and the answer usually includes the warranty provision.

(The other contentious clauses are Limitation of Liabilities and Indemnity, followed closely by who owns the IP).

Many business people assume these clauses are strictly “legal” issues. If you’ve ever attended my seminars, you know my opinion:  Even the most highly “legal” clause – such as the indemnity clause – boils down to who’s going to pay the money. In my seminars, I break down the issues and language and educate people how to make sense of and negotiate these clauses.

 

WHAT’S THE PROBLEM?

I think business people frequently view the warranty clause as a “legal” issue primarily because:

  1. i) the clause is typically written in long, difficult to read, run-on sentences, and
  2. ii) suppliers ask for warranty disclaimers similar to the following:

THE FOREGOING WARRANTY IS THE SOLE AND EXCLUSIVE WARRANTY MADE BY SUPPLIER.  SUPPLIER DISCLAIMS ALL OTHER WARRANTIES, EXPRESS AND IMPLIED, INCLUDING THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.

Business people tell me that while they’re not entirely sure what the above clause means, they know it doesn’t sound good for them. As a result, what do many people do?  They turn the entire clause/ contract over to the legal department.

What if I were to tell you that most Buyers’ lawyers will actually agree to the Seller’s inclusion of this disclaimer language?

Most lawyers will tell you that as long as you insert into your contract:

  1. i) all the Supplier’s promises about the Product/ Service and
  1. ii) all Supplier actions/ responsibilities to correct a defective Product/ Service,

then you can agree to the above disclaimer.

This Supplier disclaimer language is negating highly legal UCC warranties that may prove helpful to the Buyer if you go to court, but will be of limited value otherwise.

 

RESOLVING THE ISSUES

I have concluded that what lawyers refer to as “Warranty” are the issues that business people refer to as “Quality”.

In plain English, warranties are promises made by the Supplier about its products/ services.

More specifically, warranties deal with the following issues:

  • How specific/ detailed/ unambiguous are your specifications/ requirements/ statement of work?
  • What will the supplier do if the product/ service doesn’t meet these requirements?
  • How quickly will the corrections be made?
  • What if the supplier doesn’t make those corrections within the defined time period?
  • What if the defective product is in the field?
  • What if buyer has to recall the product?
  • Who will pay for labor charges, parts replacement, tear down?
  • What if buyer performs the warranty repair?
  • How much and when will supplier reimburse buyer?

Approaches to the limitations of liabilities issue:

  • Limitations of Liabilities is an integral issue to warranties:
    • It’s not unreasonable to agree that the Supplier will be responsible for some costs, but not for others or for all costs not to exceed a specified dollar amount.
  • One effective approach to negotiating Limitaitons of Liabilities with respect to the Warranty is to permit the supplier to limit its liabilities for certain damages (such as loss of business, profits that you’re unlikely to pursue) in exchange for the Supplier’s agreement to  make certain fixes/ do certain things.

IMPORTANT NOTES:

Your warranty will only be as good as your specs/ requirements/ SOW

  • It’s not unreasonable for the Supplier to limit its liabilities. In this litigious society, the prudent business person does so. (In fact, take a look at your company’s terms of sale.  There’s probably a limitation of monetary responsibility in there as well).
  • The goal in the warranty provision is to identify your requirements; outline the steps if the product/service doesn’t meet these requirements; and create a guideline for what happens in the “real world, worst case” scenario (In other words, what are the Buyer’s rights if the Supplier doesn’t do what they promised to do?)

I go into much more detail about warranty and many other clauses in my Legal Aspects of Purchasing and Contracts: Reading, Writing & Negotiating” seminars.

Please contact me if you have any questions.