Contracts for Dummies
Tuesday, January 5th 2010 @ 8:12 PM
By DeAnn Flores Chase
From: Stephanie Miller [mailto: stephanie@abc.com]
Date: Tuesday, July 12, 2009 4:12PM
To: DeAnn Chase
Subject: Contract for Dummies
Dear Ms. Chase,
I’m contacting you to see if there is any possible way you can assist me in an unexpected legal situation. I started an Internet marketing consulting business about three years ago. Up until about 2 ½ years ago, I was doing all the work myself. Around that time, I took on a new client in internet sales and could no longer handle the workload myself. I posted an ad on Craigslist and found David Smith. It seemed like the perfect situation because he said he was interested in contract work only so he could pursue his own business, which was website optimization. I went online and found a standard Independent Contractor contract and had David sign it. About a month ago I noticed that David wasn’t available as much as he previously was and one of my regular clients almost stopped doing business with me entirely.
Call me paranoid, but I really believe that David is doing business with this client directly and I’m scared that he could be in the process of contacting other clients of mine as well.
There is a possibility that this is all in my head. But, I was hoping you could take a look at the contract and let me know my options. Can I stop him from contacting my clients? I have attached a scanned copy of the contract for your review.
Thank you,
Stephanie Miller
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From: DeAnn Flores Chase
Date: Wednesday, July 13, 2009 9:34AM
To: Stephanie Miller [mailto: stephanie@abc.com]
Subject: Re: Contract for Dummies
Stephanie,
Thank you for contacting me. First, let me say, there is no such thing as a “standard” contract. Every circumstance is different. Pulling a contract from the internet can be dangerous to your business. The contract you pull may apply the law of a state that is different from the one that applies to the transaction in which you are involved. Sometimes, these “standard” contracts fail to include key legal provisions that are critical to enforcing your rights as a business owner. And, too often, people going into business together, or bringing others into their business, fail to recognize just how important a well-drafted contract can be.
If you are in California, you will find that what is known as a “non-competition” clause is generally unenforceable and void as a matter of public policy, except in very limited circumstances. Unless the person soliciting your clients was an officer or director of your company with a fiduciary obligation not to compete with the company, or was a former owner of the company that sold his interest to you, it is quite difficult to prevent someone from starting a competitive company.
That being said, your client list is proprietary to your company. As a general rule, I like to draft into a contract that the person being hired acknowledges that they would not have had access to the company’s clients but for his or her work for the company. I incorporate a “non-solicitation” provision that provides that the person may not contact clients of the company, or use client information, for any reason other than the provision of services for which the person is hired. To strengthen this provision, I also add to the agreement a “liquidated damages” provision, such that in the event it is discovered that the person contacted or solicited a client of the company for an improper purpose, the person acknowledges that the damage sustained by the company from the solicitation would be great, but difficult to ascertain, and so, a large dollar figure is plugged into the agreement as a stipulated minimum amount of damages.
Another area of concern for small business owners looking to grow their business by bringing on others to assist with the workload is the distinction between an employee and an independent contractor. Too often, a business owner wants to “get around” the issues of hiring an employee by hiring someone and calling them an “independent contractor.” The determination of whether someone is an employee or an independent contractor relies on many factors, each one being weighed against the other. The facts of each particular situation may produce a different outcome but in the end, it most often comes down to whether, and to what extent, the company controls the “manner and means” by which the person accomplishes the tasks for the company. Business owners need to be very careful not to misclassify an employee as an independent contractor. If a governmental or taxing authority determines that a person is truly an employee, then the business can be subject to back taxes, sanctions and penalties.
You will need to acquire more information about what David has been up to. If we find that he has been contacting your clients, we will take a look at what provisions we can use out of the contract you pulled from the internet, as well as general laws against interference with contractual and potential business relationships and unfair business practices, to ascertain whether you have a claim against David.
Regards,
DeAnn Flores Chase
