Because I look for ways to prevent unnecessary conflict and drama, it’s time for a reminder of the value of the written word.
Go ahead! Think what you will of my parenting ideas, but this little “contract” lived in my wallet for five years – until the young signatory drove off to college. Say what you like, but this piece of paper, though not entirely effective, did save on a lot of repetitive argument.
Capturing expectations and rules in written form yields all kinds of value - certainty of the terms of a deal, conflict prevention, and agreed ways to resolve quarrels, among others. Over and over, I see both businesses and professionals allow - and even create - unnecessary discord because they’re not putting things in writing that really should be, relying on sloppy, recycled agreements, and people blithely signing off on agreements they have skimmed (at best) and which contain words they don’t understand. I offer a few helpful reminders.
1. Before you sign a contract, read it – ALL OF IT. Read for comprehension. Skimming your eyeballs across the pages, reading only subtitles, doesn’t count!
2. Draft using clear, plain language. If you need to explain at length to be clear, then explain at length. If examples help, add. The goal is to write a clear statement of the parties’ agreement, without ambiguity or vagueness. If there are words you don’t understand, determine what they mean. For example, I suggest that you ascertain what “defend and indemnify” means before you agree to do that for someone….
3. As you draft a contract, be sure you understand the meaning of the recycled parts you are cadging from form files, colleagues, and the Internet. Do you really intend to apply Connecticut law and set venue for court cases in Georgia? Does the non-solicitation clause cover the unique concerns of your business and this employee’s role? Has someone carved out the consideration Texas law requires for an enforceable non-compete?
4. Businesses: when you borrow and recycle contracts, are you confident that you are complying with the most recent requirements of Texas law and federal law? If not, you could be setting yourself up to lose potential remedies or for critical parts of the agreement to be invalidated.
5. As you diligently read, ask yourself whether the words could be interpreted differently. Can you see several ways a clause might be understood? Do parts of the contract seem to conflict? If so, use clearer wording, spell out what you’re trying to say with greater detail, or give examples. Hammer out the conflicts. The aftermath of vague language is messy.
If you think you’ll try to be sneaky, don’t. Don’t count up the ways a provision could be spun later and purposely allow ambiguous language to creep into the contract, thinking you can throw out a few creative alternatives later that better suit your interests than what you think the other party has in mind. You might lose that gamble.
Courts must apply fairly well settled rules of “contract construction” to determine what a contract means. They will review the contract and give the words their plain, generally accepted meaning (unless the contract demonstrates that the parties intended them to have a technical meaning). Outside evidence of the parties’ intent, such as emails, contract drafts, letters, or notes, will be considered only if a court first finds the contract “ambiguous.” An unhappy party cannot later create ambiguity merely by claiming that it had a different understanding. That outside evidence (referred to as “parol” evidence) is not allowed to “manufacture” ambiguity. Only the courts get to decide if a contract is ambiguous. The parties later offering differing interpretations does not create ambiguity, opening the doors to external evidence of what you both say you “really meant” back when you signed. If the court decides that the contract plainly says “ABC,” then you are stuck with “ABC,” so start out with language you believe clearly says what you want it to say.
6. After you have read the contract, are important questions left unanswered? Left partially answered? Address them.
7. The time to negotiate is before the parties sign. Everyone wants “the deal” to work and the parties are often at their freest to be creative and flexible. Don’t assume you will get to renegotiate later. Don’t rely on “figuring it out later.”
8. Employees: if you have the option to decline to join in a contract, consider whether you should graciously decline. For example, if a bonus plan would obligate you to more rigorous non-competition obligations that would impair your post-exit work plans and you may not be around when the bonus is payable, anyway, should you decline to participate?
9. For either side, it’s a bad plan to enter into a contract assuming that the other party won’t try to enforce it. As an employee, are you willing to comply with the obligations you are signing onto if the company decides to go after YOU, even if it has no history of enforcement against others?
10. Read as if you expect trouble, even if you don’t. If trouble rears its head, the parties can often minimize it by turning to the contractual provisions for answers to the problem. No, your contract does not need to be ninety-two pages long, but you should address the agreed means to handle problematic scenarios that the parties reasonably expect may arise – before the grease hits the fire.
11. As you read, don’t skip the “legalese” at the end just because “every contract says that.” Well, they don’t, and those clauses are still a part of the overall agreement.
On multiple occasions, I have seen parties relieved of the responsibilities and benefits of prior agreements by that little “merger” (or "integration") clause that says the current agreement supersedes all prior agreements on the subjects covered in the agreement. Depending on which side of that you’re on, you can be very happy or very sad (and less financially well off, one way or another). Might this agreement terminate an existing bonus arrangement? Does this contract cancel a non-solicitation agreement? If there are critical agreements in place that the parties intend to keep intact, draft accordingly.
These “boilerplate clauses” are also where people later realize they have agreed to use Georgia law or that they have agreed to arbitrate all disputes at their own expense. The headings looked so mundane and harmless….
12. Build in an exit. All good things must end. Figure out how you want to end the deal or the relationship. Do you want a set term? If the contract is evergreen, how and when do the parties give notice of termination? What are the parties’ responsibilities after the termination occurs?
Be your own best ally and advocate. Draft carefully and thoughtfully. Read before you sign. Be prepared to honor your words.
NOTE: This post is general information only and does not constitute the offer of any legal advice. Always consult qualified legal counsel for advice concerning your particular facts, needs, and concerns.