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Contract Drafting Tips for Small Businesses

Posted on Fri, Mar 23, 2012 @ 02:22 PM

Jack B. Harrisonby Jack B. Harrison

If you own or manage a business, you’re likely to have entered into contracts with employees, vendors, consultants, renters and landlords, banks and other financial institutions, insurers, and, of course, customers and clients. To help prevent your agreements from getting you into the wrong kind of bind, here are six tips on drafting legal contracts:

  1. Want a contract that’s binding? Say so:

    Judge Richard Posner, a noted federal judge and scholar on the topic of contracts recently decided a case in which he explained why not every document which expresses a mutual understanding is or should be enforceable as a contract, especially when that document includes language that specifically disclaims the intent to form a contract.” It almost seems redundant. Why would you need a paragraph saying that the contract is binding? After all it’s a contract right? Well, as Judge Posner tells us, make sure your contract specifically says that the intent is to bind the parties to a contract.

  2. “But it was free” doesn’t matter if it isn’t right for you:

    Is it really a good idea to simply search the Internet for a free confidentiality agreement form because you need to hire a consultant for your business? First, think about why you need the confidentiality agreement at all.  After all, the point of a confidentiality agreement is to protect the confidential and proprietary information that your company uses to create whatever competitive advantage it has in the marketplace, arguably the single most valuable asset of the company. So, if using a free confidentiality agreement form on the Internet that looks like it may be effective, you need to be sure that it was drafted to favor the company not the consultant.

  3. Using a form contract? Make sure you don’t put your business at risk:

    Form contracts account for a large percentage of all agreements used to complete business transactions today.  Yet, did you carefully review the specifics of the form contract before signing it and binding your company.  Do not assume the form contract is an agreement designed to be equitable to both parties. Generally, terms in a standard form contract are designed to favor the party that presents it. To limit your company’s risk, it is vitally important to be able to recognize and negotiate unfavorable provisions out of form contracts. Simply because it is a form contract does not mean it is not subject to negotiation and modification.

  4. Clear and understandable language is crucial:

    You get an agreement from a new business partner or vendor. As you begin to read it your eyes glaze over. The language in the agreement is simply gobbledygook. Quantum physics may be hard to read certainly.  But that is because quantum physics is, in fact, hard, no matter how well you write it (even for quantum physicists). On the other hand, contracts should be easy to read – clear declarative sentences organized into paragraphs arranged in a logical order.

  5. A little ambiguity isn’t always a bad thing:

    Normally, common sense suggests that clarity should be a primary goal in drafting contracts. However, as Judge Posner has stated, ambiguity may play a valuable role in contract drafting. As he explains in The Law and Economics of Contract Interpretation, an economic analysis of contract interpretation reveals that the presence of intentional ambiguities in contracts is not only rational but, in many circumstances, desirable.

  6. Prepare for the unexpected. And get it in writing:

    Obviously you want to avoid litigation over contract terms.  One key to avoiding litigation costs is drafting well-written force majeure and make-up provisions in your contracts. If you fail to review these provisions carefully during contract negotiations, you may end up paying damages to end-users or paying your attorneys later to litigate poorly drafted and inconsistent clauses in your contract. Missing key terms or inconsistent definitions often ultimately leads to costly litigation, which no business wants to endure.

Tags: Small business, Confidentiality Agreement, Form Contracts, Contracts

Court Upholds NLRB Employee Rights Notice

Posted on Fri, Mar 16, 2012 @ 10:05 AM

Robert Hollingsworth, Labor & EmploymentBy Robert Hollingsworth

Employee Rights Notice Must Be Posted By April 30, 2012

On March 2, 2012, the U.S. District Court for the District of Columbia upheld the NLRB’s right to require employers to post the NLRB’s Employee Rights Notice.  This Notice informs employees in the private sector of their rights under the National Labor Relations Act to engage in “protected concerted activity.”  In a 46-page opinion, the District Court rejected all of the challenges made by the National Association of Manufacturers to the NLRB’s authority to require employers to post the Notice.

This Notice must be posted by April 30, 2012.  It is available in English and 26 other languages at the following webpage:  www.nlrb.gov/poster.

There was some consolation for employers in the Court’s decision. 

The Court struck down two of the penalties prescribed by the Board for an employer’s failure to post the Notice.  The NLRB’s Final Rule on the Notice provided that the failure to post the Notice would be an independent unfair labor practice (ULP) and would suspend the six-month statute of limitations for other ULP’s (i.e., the charging party would have more than six months to file a ULP charge).  The Court ruled that the NLRB lacked authority to expand the statutory list of unfair labor practices, or to change the statute of limitations.  But the Court also indicated that an employer’s failure to post the Notice might be properly used by the NLRB in other ULP cases against the noncompliant employer as evidence of the employer’s unlawful motive.

National Association of Manufacturers v. NLRB, Case No. 11-1629 (D.C. March 2, 2012)

Tags: Labor & Employment, National Labor Relations Board (NLRB), Unfair Labor Practices (ULP), Employee Rights Notice, National Association of Manufacturers

The City of Clevelend, "Flash Mobs," and Social Media

Posted on Tue, Mar 13, 2012 @ 09:15 AM

Joseph S. Burnsby Joseph S. Burns

Cleveland’s City Council recently passed an ordinance that would have banned the use of social media websites to organize what are known as “flash mobs.” When that legislation was vetoed by Mayor Frank Jackson, amid criticisms that it was unconstitutional and difficult to enforce, Cleveland’s City Council went back to work, this time crafting a new ordinance that would ban the use of computers and cell phones, rather than specific social media web-sites, to incite riots.

The new legislation, which carries penalties of up to six months in jail and fines of $1,000, is pending approval by Mayor Jackson, who said he will confer with the city’s law department before deciding whether to sign it into effect.

James Hardiman, the Legal Director for the American Civil Liberties Union of Ohio, believes that the new ordinance is flawed and will be challenged by the ACLU. Specifically, Hardiman said that the law, as proposed, may end up punishing those who arrange innocent gatherings that ultimately turn disorderly, and that it may result in the illegal search and seizure of computers and cell phones. The dispute over the new legislation is yet another example of the various ways in which social media continues to affect local governments.

Tags: Flash Mobs, City of Clevelend, Local Government, ACLU, Social Media

Importance of Underinsured Motorist Coverage

Posted on Wed, Mar 07, 2012 @ 08:06 AM

Michael L. Gayby Mike Gay

Are you "really" covered?  You might be surprised.

When obtaining automobile insurance coverage it is critical that you request from your agent uninsured/underinsured motorist coverage. Ohio law has changed and the insurance company is no longer required to offer this coverage to you.  As a result, many are unaware of this coverage, and fail to obtain what is probably the most important coverage for your well-being, and that of your family.

If you are seriously injured in a vehicular accident, and the individual who caused the accident has insurance coverage of the State minimum of $12,500.00, the amount you can recover for your wage loss, medical bills, and pain and suffering is limited to $12,500.00, unless the individual who caused the crash had significant other assets, which is typically not the case.  The only way to protect yourself and your family is to have significant uninsured/underinsured coverage. 

For example, if your damages total $250,000.00, and you have underinsured motorist coverage of $500,000.00, you can obtain $12,500.00 from the insurance company of the person who caused the crash, and the balance of $237,500.00 from your own carrier pursuant to your underinsured coverage. 

It is also important to understand the concept of subrogated medical expenses.  Subrogation is a term in your health insurance policy which means that you must reimburse the carrier for the medical bills it paid if you recover money from a third party or his insurance company.  In the past you were entitled to be reimbursed first for your damages, and once you were fully compensated, the health insurance company would be repaid. 

The Ohio Supreme Court has changed Ohio law and held that the health insurance company gets paid first.  Assume that your underinsured motorist coverage is $50,000.00, and once again your claim is worth $250,000.00.  If your medical expenses alone total $50,000.00, your health insurance company, pursuant to the concept of subrogation, is entitled to be repaid in full before you receive any funds.  Accordingly, assuming you had only $50,000.00 in underinsured motorist coverage, all of that money would go to repay your health insurance carrier, and there would be no money available to adequately compensate you and protect your family.  As a result, purchasing an adequate amount of uninsured/underinsured motorist coverage is important.

Tags: Underinsured Motorist Coverage, Ohio Law, State Minimum Coverage, Subrogated Medical Expenses

Governmental Social Media Policies and the First Amendment

Posted on Mon, Mar 05, 2012 @ 12:23 PM

Joseph S. Burnsby Joseph S. Burns

The Dover, Delaware City Council recently rejected a proposed policy that would have regulated city employees’ activities on social media networks by prohibiting employees from posting:

      (i)  Negative comments based on a person’s race, gender, or other legally protected
           category, and

      (ii) Disparaging comments about co-workers

Both such prohibitions will apply regardless of whether such comments were posted from work or from one’s own home.

Council members concluded that the policy, drafted by the City Manager to protect the city from liability arising from on-line harassment, would have infringed employees’ rights under the First Amendment, an opinion shared by the ACLU, which had contacted City Council,  cautioning that the proposed policy constituted a “clear violation” of First Amendment rights. While various governments across the country have adopted social media policies, courts have consistently found that overly restrictive policies infringe the First Amendment, protecting the rights of governmental employees.

The key, in short, is for a local government to adopt a policy that strikes an appropriate balance between that local government’s legitimate interests and the rights of its employees under the First Amendment.

Tags: Social Media, First Amendment, Governmental Policy

BWC Sued for Failure to Timely Perform Medical Exams

Posted on Fri, Mar 02, 2012 @ 11:14 AM

David J. Schmitt by Dave Schmitt

In a very interesting development, a class action lawsuit was filed this week against the Bureau of Worker's Compensation (BWC) in the Clermont County Court of Common Pleas.

The suit alleges that the BWC fails to enforce state law that requires a medical examination within 30 days of the conclusion of any employee's first 90 days on disability benefits, forcing the plaintiff, and all employers, to pay additional premiums and excess disability benefits.

The case is captioned: Ward Construction v. Stephen Buehrer.  The full text of the case has not been made available yet.  We'll post it here as soon as it's available.

It will be interesting to follow the developments as this case moves through the system. Stay tuned.

Tags: Bureau of Worker's Compensation, Clermont County Court of Common Pleas, Ward Construction v. Stephen Buehrer, Dave Schmitt