Luck and Legalities: Contractual Considerations for Your Business

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Hello again! Hopefully you’ve taken this time to digest the issues we discussed in our prior blogs on the birth of your business and corporate governance agreements, and are ready to get down to business. But before you do, there are some additional building blocks for your business (say that three times fast) that you should consider, and those are your day-to-day agreements. These include employment agreements, independent contractor agreements, confidentiality agreements, and client services agreements. These types of agreements take many forms and vary in terms of complexity and legal considerations, but there are two themes that run through all of them: (1) use them; and (2) read them. Let’s get into it.

You are Now my Elite Employee

Hiring your first employee is exciting, indicative of growth, and something to celebrate. But before you pop champagne and take hours to build their Ikea desk, you should finalize their employment terms through an employment agreement or offer letter. Quick note on this: employment agreements and offer letters can be used interchangeably, with the biggest difference between them being formality/complexity. Both summarize the key employment terms, but an offer letter is a bit more personal and an employment agreement is a bit more formal and includes more “legalese”. Both do the job just fine, but you typically use employment agreements for more senior positions whose roles tend to involve more bells and whistles.

What these documents say is more important. Think about things like: compensation, exempt vs. non-exempt status (and if you aren’t sure if your employee is exempt from overtime, nail that down BEFORE you finalize the agreement), hours/schedule, overtime eligibility (if non-exempt), confidentiality/intellectual property, non-solicitation provisions (non-competes are increasingly on the chopping block for employees), I-9 requirements, and, VERY importantly, whether the employment is at-will or for a specific term. Like with any agreement, an employment agreement (or offer letter) not only better protects you from liability and claims, but sets the standard for your employment relationship from day 1.

1099 Employees DON’T. EXIST.

 If you didn’t hear us the first time: “1099 employee” is an oxymoron and doesn’t exist . . . just like leprechauns don’t exist. If you think you’ll find the pot of gold at the end of the rainbow by calling an employee an independent contractor, you’ll be sorely disappointed. All you’ll find at the end of that rainbow of willful ignorance is liability and almost certainly fines. In case you can’t tell, we feel very strongly about this. Construction contractors: this one’s for you, with love, from Laura – your laborers probably aren’t independent contractors, even if they can choose which projects they work on.

Now that we got that out of the way, let’s say you retain a true independent contractor or vendor. They will either provide their standard agreement for you to review, or expect you to have one in place for them. Either way, you need to have something in writing and make sure that, at a minimum, the following terms are crystal clear: (1) fees, expenses, and general payment terms; (2) that they are in fact a separate business or entity and not your employee; (3) confidentiality; (4) intellectual property and ownership of the deliverables/materials/work product (that’s twice now if you’re keeping count, we’ll get to that in a second); (5) restrictive covenants; (6) term and termination; (7) indemnification and limitations of liability; and (8) dispute resolution. There will definitely be additional considerations based on the scope of work, but those are just a few key terms that you absolutely should have in place.

Your Client Services Agreement is Another Marketing Tool, But Also A Lot More Than Just That

You do great work, truly. You’re hardworking, insightful, responsive, and attentive. Put that on your mood board and make it your daily affirmation. You know it, and we know it. But all your clients know is that your client agreement is a mess and doesn’t make much sense. All that work and what did it get you? Your client services agreements, master services agreements, whatever you call them, are oftentimes the first example of your work product that your client sees. They must be clear, cover common issues that you often encounter while performing your work, and clean. And they MUST protect you.

What should you include in your client services agreements, you ask? Again, depends on the work that you’re doing, but key terms include things like: (1) payment; (2) scope of work and change orders/extra work; (3) confidentiality/protection of your intellectual property; (4) non-solicitations/non-competes; (5) warranties/guarantees (or lack thereof, in the case of disclaimers); (6) indemnification; (7) limitation of liability; and (8) dispute resolution.

Confidentiality/NDAs – The Secret is Out

The suspense was killing us too. Everyone loves non-disclosure agreements (“NDAs”) and they get thrown around like shamrocks and pints of Guinness at a St. Patrick’s Day bar crawl. We always suggest having your own NDA in place, but you’ll also likely be asked to sign your counterparties’ NDAs from time to time.

A word of caution: these can be very helpful, or very detrimental, so READ. THEM. CAREFULLY. We’ve seen NDAs that include sneaky restrictive covenants like non-competes/non-solicitations that make no sense in light of the parties’ specific relationship. We’ve also seen NDAs that are too broad in terms of ownership of intellectual property and confidential information. In reviewing confidentiality agreements and NDAs, pay close attention to: (1) whether they’re mutual or unilateral; (2) how broadly or narrowly things like “confidential information” and “intellectual property” are defined; (3) permitted uses and exceptions; (4) duration of the confidentiality restrictions; and (5) dispute resolution.

One last thing on NDAs – ask yourself, what is this for? An NDA for your accountant or website developer will be very different than an NDA for someone looking to buy, or invest in, your business. Make sure you have the “right” NDA for the occasion.

To sum this up: your contracts can either give you control or put all the control in the hands of the other party. Operating your business without having the above contracts in place is the legal equivalent of jumping out of an airplane without first double checking that you have your parachute. All we can say to that is, if you currently don’t have any of these agreements in place, “may your day be touched by a bit of Irish luck.” And, as always, if you’ve got questions, you know we’ve got answers. 

~ The W + K Team

ABOUT WEINSTEIN + KLEIN P.C.

Established in 2019, Weinstein + Klein is a boutique law firm focused on labor and employment law, business matters, and litigation. W + K works with businesses, individuals, and entrepreneurs to protect their legal interests. In addition to advising clients on employment matters and working with businesses to minimize their risk of litigation, we advise small businesses and start-ups on various business law matters. 

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