Does Your Business Lawyer Draft Contracts That Encourage Dispute Resolution Or Lawsuits?

By | Business Contracts, Dallas Business Lawyer, Intellectual Property | No Comments

Does Your Business Lawyer Draft Contracts That Encourage Dispute Resolution Or LawsuitsImagine your most important business agreement has been breached by the other side. What would you do?

For many companies, the answer is a costly lawsuit that often sucks up more time and money than the amount of damages caused by the breach in the first place.

Is there an alternative to a breach of contract lawsuit?

Yes.

Have your agreements drafted an experienced business lawyer so that they favor resolving disputes quickly and at minimal cost.

How?

Here are three key issues to cover in your business contracts that should fix most problems:

(1) Include a comprehensive alternative dispute resolution process;

(2) Make the law that governs the agreement favorable to you; and

(3) Have disputes settled in a location that minimizes your costs.

Related Article: 5 Things You Should Review With Your Business Lawyer Annually

1. Alternative Dispute Resolution Clauses

5 Things You Should Review With Your Business Lawyer AnnuallyYour agreements should provide for a multi-step process for solving problems without going to court.

Common stages of dispute resolution include informal discussions between the parties, mediation, and arbitration (binding or non-binding). Many business attorneys who are not trial lawyers prefer binding arbitration for their clients because it typically saves time and is cost-effective.

2. Applicable Law

Make sure that the law governing your agreement generally favors you. This is particularly important when the other party is located in another country whose laws on contract enforcement are lax or nonexistent.

3. Venue

Even if you’re not heading to court, you’ll want the location of your dispute resolution process to be in a location that’s convenient for you. Ideally, that will mean having the contract provide that mediation and arbitration occur in the same geographic area (e.g. city or county) as your company’s headquarters. In the alternative, if the other party insists, agree in the contract to resolve disputes at a neutral location that’s mutually convenient.

What contract disputes should your business lawyer encourage be resolved by a court instead?

Unfortunately, sometimes it’s necessary to sue to protect your company’s legal rights. Because of this, your corporate legal counsel will want to carve out exceptions to mandatory alternative dispute resolution to cover issues like intellectual property infringement, violation of a non-competition clause, and related matters where equitable relief from a court may be needed.

How to Use a Non-Disparagement Clause to Protect Your Business

By | Dallas Business Lawyer, Dallas Business Lawyer, eCommerce Agreements, Employment Agreements, Featured Articles, Social Media, Technology Contracts | No Comments

non-disparagement clause

What is a non-disparagement clause?

A non-disparagement clause is an optional part of a contract that typically requires each party to the agreement will not say bad things about the others to third parties or the public in general. It’s designed to protect the reputations of all involved in the deal as well as prevent contractual disputes from going atomic through smear tactics.

Why have non-disparagement provisions become more important?

Traditionally, attorneys would focus on including nondisparagement clauses in settlement agreements that ended existing disputes before or during litigation. This is part of cleaning up a mess that’s already been made and trying to limit the damage caused in the process because the parties involved don’t like each other.

Today, because it’s so easy to ruin a company’s reputation through negative posts on consumer review websites and in social media outlets like Facebook, business owners are preemptively trying to gag their customers by having routine contracts provide for no disparagement.

Dallas Internet Lawyer Mike Young notes a recent Texas case where a couple was sued after posting a one-star review of a pet-sitting company on Yelp for violating a non disparagement clause. “The business was demanding up to $1 million to cover alleged damages from the negative review,” he said.

Are “no disparagement” clauses enforceable?

It depends.

There are conflicting opinions by courts in various jurisdictions on whether or not you can enforce such a clause against your customers.

As a general rule of thumb, a non-disparagement clause that’s between your company and another business (a B2B transaction) is more likely to be enforced by a court than such a clause between your business and individual(s) in a business-to-consumer (B2C) transaction.

When striking down “no disparagement” provisions in consumer agreements, employment agreements, and settlement agreements, judges tend to rely upon the First Amendment rights of the individuals or vagueness in the boilerplate to reach such a decision.

Should you include a non disparagement clause in your agreements even if it might be unenforceable?

Yes.

According to Dallas Internet Lawyer Mike Young, the primary purpose of the clause is to discourage the parties from discrediting each other in the first place rather than trying to obtain damages after disparagement has occurred. “If nothing else, the clause reminds everyone involved in a deal to be nice to each other.”

Joint-Employer Liability: How To Avoid It As A Business Owner

By | Dallas Business Lawyer, Dallas Business Lawyer, Employment Agreements, Featured Articles, Franchising, Licensing | No Comments

joint-employer liabilityAs noted by the Wall Street Journal in the editorial “A Joint-Employer McDouble,” both the federal government and class action attorneys are working hard to impose joint-employer liability on franchisors for alleged misconduct by franchisees with regard to employee claims.

Business Opportunity Licensors and Joint Liability

According to Dallas Internet Lawyer Mike Young, the theories being used to shake down franchisors like McDonalds may also be applied to those who license rather than franchise their business systems. In other words, if franchisors can be held jointly liable as employers, it’s not too far of a stretch for the same legal arguments to be applied in suits against business opportunity licensors for claims made by licensees’ employees.

Indirect Control and Joint-Employer Liability

The National Labor Relations Board (NLRB) is attempting to impose joint employer liability under the theory that a franchisor indirectly controls at least some of a franchisee’s employees.

Ostensible Agency and Joint Liability

As noted in the Wall Street Journal editorial, it appears that plaintiffs’ attorneys may succeed if they can show that franchisee employees reasonably believed that franchisees were acting as ostensible agents for the franchisors when committing misconduct.

How to Reduce the Risk of Being Held Jointly Liable

License instead of Franchise

In addition to less regulatory burdens, licensing your business system (instead of franchising) reduces the odds you’ll be on the hook as a joint-employer. Unlike franchising, there are many ways to structure a business licensing deal so that a licensee’s employees don’t even know of the licensor’s existence.

Lacking knowledge of a licensor-licensee relationship, it would be difficult for a licensee’s workers to argue joint employer liability under ostensible agency or indirect control theories.” – Dallas Internet Lawyer Mike Young

Indemnification and Defense

It may be appropriate for your franchise agreement or business opportunity license agreement to make it clear that if an employee of a franchisee or licensee brings a claim against you as an alleged joint employer, that your franchisee/licensee will indemnify and defend you against such a claim.

Written Employment Agreements and Policies

Of course, whether you’re a franchisor or a business system licensor, you may want to ensure that your respective franchisees and licensees make it clear in employment policies and any written employment agreements that you do not control their employees (directly or indirectly) and that your franchisee or licensee is not acting as your ostensible agent with regard to employment matters.

Your business lawyer can prepare related provisions for use in employment contracts and workplace policies.

Gentleman’s Agreement: How to Avoid Getting Screwed

By | Business Lawyer, Dallas Business Lawyer, Dallas Business Lawyer, eCommerce Agreements, Featured Articles, Software Agreements, Technology Contracts | No Comments

gentleman's agreementWhether by handshake or an email that says “It’s a deal,” business owners often get into legal trouble because of a gentleman’s agreement (a.k.a. gentlemen’s agreement).

What is a Gentleman’s Agreement?

A gentleman’s agreement is an agreement which is not an agreement, made between two people neither of whom are gentlemen, whereby each expects the other to be strictly bound without himself being bound at all.” – Sir Harry Vaisey

Despite Judge Vaisey’s cynical description of such an agreement, most informal deals are entered into in good faith between small business owners who want to get things done without the time and cost of retaining a qualified business lawyer to paper the deal as a legally binding contract.

Donald Trump and the Art of the Handshake Deal

If you’ve read “The Art of the Deal” by Donald Trump or “Trump-Style Negotiation” by The Trump Organization’s senior legal counsel, George H. Ross, you’ll know that Trump will often shake hands on a verbal gentlemen’s agreement with another party.

However, Trump will then turn the deal over to Ross or another business lawyer to draft the contract that reflected the terms agreed to between the parties.

Words Have Different Meanings

So what’s wrong with just getting things done without a written contract in place?

Spoken words often have a different meaning to the listener than to the speaker. For example, if you’re buying a shipment of smart phones and tell the supplier that you need them a.s.a.p., you might mean delivery next week. However, the seller could interpret “as soon as possible” to be three months from now when he gets his next shipment from China.

Memories Fade

As pointed out by successful entrepreneur and author Harvey Mackay, “[p]ale ink is better than the most retentive memory.”

Unless the verbal agreement is performed within the space of a few hours, memories of what was agreed to will fade. That leads to misunderstandings and frequently lawsuits alleging breach of contract, bad faith, fraud, etc.

Honesty and the Verbal Agreement

Some contend that if both parties are honest, then there’s really no need for a written agreement because they’ll each endeavor to do what’s right.

Yet how can you tell? When it comes to deciding whether to enter into an oral B2B contract, there’s no acid test for honesty.

Better to get it in writing so there are remedies in place if the other party turns out to be a crook and a liar.

Preventing Misunderstanding of Your Gentlemen’s Agreement

Benjamin Franklin was right when he said that an ounce of prevention was worth a pound of cure. This is particularly true when preventing an expensive lawsuit or a bad business deal by taking a little time to get an oral agreement converted to a writing signed by the parties.

According to Dallas Internet Lawyer Mike Young, you can protect yourself by having a qualified attorney prepare a written contract that accurately reflects the gentleman’s agreement both parties verbally agreed to with regard to price, quantity, time, location of performance, and dispute resolution.

Non-Compete Agreement: How To Make It Legally Binding

By | Dallas Business Lawyer, Employment Agreements, Featured Articles, Independent Contractor Agreements | No Comments
non-compete agreement

A valid non-compete agreement can help you protect your business

Although an employee non-compete agreement is disfavored as against public policy because it discourages commerce by restricting an employee’s right to work elsewhere or set up a competing business, generally such contracts have been enforceable if they’re reasonable in scope.

What’s a reasonable scope for an agreement not to compete?

Although there is no hard and fast rule because the laws vary by state, generally the scope of a noncompete agreement is considered reasonable if:

(a) it is for a short term (e.g. 1 to 3 years);

(b) covers a geographic area that’s consistent with the area where your company does business; and

(c) it only limits the same type of work as the employee is doing for you.

Consideration for a valid non-compete agreement.

In addition to being reasonable in scope, the employee must receive consideration (something of value) in exchange for signing the noncompetition agreement. I

n mos

t cases, this can be satisfied by making the offer of employment to a job applicant conditional upon an agreement not to compete.

However, Dallas Internet Lawyer Mike Young cautions against making the noncompete agreement a separate contract from the employment agreement instead of making it part of the employment contract. He said, “If you have a covenant not to compete as a separate contract, the employee may argue that there was no valuable consideration received in exchange for it. In Texas, that’s a difficult claim to make if the noncompetition covenant is within the employment contract itself.”

Post-Hiring Noncompete Agreement

After an employee has been working at your company for a while, you may decide you want to protect your business by having the employee sign an agreement not to compete. This means that you’ll need to provide some valuable consideration to the employee beyond continuing his employment if you want the noncompetition agreement to be legally binding.

Your business lawyer can help you come up with the type of consideration that makes the contract binding but without costing you a fortune in the process. Common types of consideration given in exchange for a noncompete agreement to an existing employee include:

  • a small raise;
  • extra paid time off (PTO); or
  • increased employer contributions to the employee’s 401k.

Rather than incur an ongoing increase in expenses, some employers prefer to provide a lump sum monetary payment or pay for a short vacation as the consideration for the covenant not to compete.

Are There Employees Ineligible for a Noncompetition Agreement?

Under the guise of protecting the consumer, there’s a recent trend by states attorneys general to crack down on employers who force low wage employees with minimal skills to sign noncompete agreements as a condition of employment.

For example, both the Illinois Attorney General and the New York Attorney General recently went after fast food franchisor Jimmie Johns for requiring low level employees to sign 2-year noncompetes that barred the employees from working for a competitor within two miles of a Jimmie Johns’ sandwich shop. In June 2016, Jimmie Johns agreed to stop this practice.

Had the sandwich shop franchisor limited its noncompetition agreements to executives and other upper management, it’s unlikely the chain would have been targeted by either state’s attorney general.

What About Independent Contractors and Covenants Not to Compete?

According to Dallas Internet Lawyer Mike Young, there are additional dangers when having an independent contractor sign a non-compete agreement. According to Attorney Young, making an individual who is an independent contractor sign an agreement not to compete can be a factor used by a court or government agency to determine the individual is actually your employee. This can lead to liability for additional taxes, unemployment compensation, and workers’ compensation.

How to Get a Good Non-compete Agreement

Whether you want to use a noncompete agreement with a prospective employee, an existing employee, or an independent contractor, your business lawyer can advise you whether it’s feasible and draft a contract that’s designed to protect your interests from unwanted competition by your workers.