3 Red Flags to Look for in Legal Contracts

(Disclaimer: The following article is provided for informational purposes only, and is not legal advice. If you need specific legal advice, you should work with an attorney that is licensed to practice in the locations that best fits your needs)

When most people read legal contracts, their eyes instantly glaze over.

I get it. Contracts are not written for the average entrepreneur. They’re written in legalese. 

Luckily, my professional experience and very (very 😬) expensive law degree have given me a certain set of spidey senses that I can tap into, i.e., reading painfully boring contracts with relative ease & pointing out things that seem funky. And so I thought I’d share some of my gifts with you.

Below, find the top 3 things that I pay special attention to before signing a contract:

1. “Loosey Goosey” Termination Rights

Oh money. It’s the root of most arguments, no? 😅

That’s why termination clauses are important. They usually cover*: 

• The term length (i.e. the timeframe for your agreement); 

• How much notice (i.e. a head’s up, written or otherwise) you should give or be given before ending a contract; or

• What happens if you’ve already completed work for your client.

As you can infer, all of these details are hella important, because together they explain how you’ll get 💸 💸 if your contract ends abruptly.

Possible red flag: An agreement with termination rights are too one-sided, undefined, or super broad (aka “loosey goosey”).

Example: A new client gives me a contract that states I would only get 2 days head’s up (🚩🚩🚩 ) if she were to end our arrangement and I wouldn’t get compensated for work that I already produced (🚩🚩🚩). As you can tell, these terms are very one-sided and would NOT work for me, and so I would go back to the client and propose something that was more reasonable for my business (and my bottom line).

(*this is not an extensive list)

2. Broad Work Product Clauses

Up next, Work Product!

Work Product consists of any work that you specifically create for your client. And unless you state that you want to retain certain IP rights to your work within an agreement, you can stand to lose some of your most valuable assets. 

Possible red flag: A contract that doesn’t clearly articulate the proprietary methods, frameworks, and templates that I use (and plan to continue using after the contract ends) as belonging to me.

Example: A new client, Willy Wonka, gives me a contract that says any and all work (🚩🚩🚩) that I produce while working on his new project belongs to his company (🚩🚩🚩). However, let’s say I’ve just crafted the most beautiful strategic plan or SOP (yes, strategic plans and SOPs can be works of art IMO) for my favorite client, Willy Wonka. While I would want Willy to own his new biz strategy, because the details would be specific to running his candy-factory business, I wouldn't want him to own my analytical framework and template. Why? Because those are tools that I created prior to working with Willy and plan to use for future clients.

3. General Non-Competes & Non-Disclosure Agreements (NDAs)

One of the goals of non-competes and NDAs is to prevent workers from directly competing with their employers by, e.g., taking company secrets over to a competitor. And this I can understand! I certainly wouldn’t want someone taking my secret mojo to a competitor.

So why, then, do I care about these clauses? 

Possible red flag: Clauses that are too general and don’t tell me the ‘who’, ‘what’, ‘when’, and ‘where’.

Example: A health and wellness client sends me a contract that states I cannot work with any mental health practitioners they’re associated with (🚩🚩🚩) and that are based in the Tri-state area (🚩🚩🚩), for the next three years (🚩🚩🚩) after our contract ends. And let’s say my customer base are mental health practitioners based in New York. Well, this would be a problem for a few reasons. First, my whole business is centered around supporting mental health practitioners. Second, my company is in the NY-metro area. And third, the agreement doesn’t give me a list of the mental health care practitioners they’re associated with. Together, these clauses place a geographical and industry limitation that seriously restrict my ability to work!

If this was helpful & you realize that you may need biz support that’s legal in-nature (e.g. thinking through what legal ops you may need, writing the right policies for your teams, etc) 👉🏾 Set up a discovery call with me today!