Reasonable Contract Terms

Several years ago, a potential client contacted me to work on a charting add-in. In the contract the client wanted me to sign was a clause that I would not create any chart that I created for this company and that I would never use any code that I used in creating its add-in.

Given that Excel has only a handful of chart types, I concluded that the first clause was unreasonable. The second was as bad, if not worse.

Depending on how one interpreted the code clause, would I be barred from using the Charts.Add method? Or a If statement? After all, there aren’t all that many ways to programmatically create a chart to visually represent data in a worksheet range.

A couple of years later I happened to visit the company’s website and discovered that the product was available for sale. Among the many charts were the classic BCG Matrix Model Chart and the Marimekko chart. I couldn’t help but wonder who agreed that s/he would never ever create any of the charts in the add-in. Not to mention that, strictly speaking, any Excel chart is really nothing more than one of the basic chart types, or a combination of the basic chart types, formatted appropriately. So, is this developer barred from creating a XY Scatter chart, a Bubble chart, and a Column Chart? I imagine if one went through all the charts in the add-in one would be barred from creating any chart in Excel! {grin}

Since then, I’ve worked with companies large and small including one of the world’s largest financial news provider, one of the largest, if not the largest, U.S. retail brokerage, a public utility company, several large regional health care providers and many smaller companies ranging from 10 employees to, oh, several hundred employees. And, I have not had a problem signing the contract, if any, that these companies have required.

Until a couple of weeks ago. A potential client contacted me about some work it wanted done. There were two clauses in particular that reminded me of the experience from all those years ago.

In the quotes from the contract below, I’ve replaced the company name by Cn (or Company name).

Non-Disclosure, Non-Complete and Confidentiality.
Each party acknowledges that it and its employees or agents may, in the course of this Agreement, be exposed to or acquire information which is proprietary to or confidential to the other party. Each party agrees to hold such information in strict confidence and not to disclose any such information to any third parties. Each party agrees that they will not engage in direct work with the other party’s clients.

Spelling and grammatical errors apart, I realize the intent of the last sentence was probably that we not poach the others clients. But, a literal interpretation would require something very different. If a company, say company ABC, is already a client of both Cn and myself, are we now both required to drop it as a client? {grin}

Intellectual Property.
Any writing or work of authorship, regardless of medium, created or developed by Cn or Tushar Mehta in the course of performing the Services under this Agreement and relating to any existing works owned by Cn or its clients shall not be deemed a “work for hire” and shall be owned solely and exclusively by Cn. To the extent any such work for any reason is determined not to be owned by Cn, Tushar Mehta hereby irrevocably assigns, transfers and conveys to Cn all of Tushar Mehta’s right, title, and interest in such Cn Work, including, but not limited to, all rights of patent, copyright, trade secret, know-how, and or other proprietary and associated rights in such Cn Work.

Again, I imagine the intent is very different than a literal interpretation of the clause. Cn probably wants an assurance that if it shared an existing model with me, any changes I made to it would still leave ownership with Cn. The place where I had a problem was what if I used code from my code library? Say, I drop my menu creator class into the Cn project? Or my equivalent of the now depracated Application.FileSearch? Or my version of the superset of the Range.Find method?

What happened? Well, I asked Cn if it was open to reviewing the clauses I had a problem with. A few days after my email, my contact informed me that Cn had found someone willing to sign the contract as-is.

What would you have done?

Maybe, having had a lawyer review a similar contract, you already know that my interpretation is overly paranoid?

Or, you know that the contract is unreasonable and therefore unenforceable?

Or, would you also have asked for a revised contract?

Or, just sign the contract and then ignore it when dealing with future clients? After all, how will Cn know what you do with another client?

Or, checked with a lawyer?

Or, something that I haven’t thought of myself?

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18 thoughts on “Reasonable Contract Terms

  1. Let me start by saying I have never done consulting work so I have no experience with contracts like this; however, I would not sign such a contract. Why? Simple. As much as you might trust the individual who presented the contract to you to follow the reasonably accepted understanding of the contract’s wording, any person who succeeds him may not be as reasonable. No matter what verbal reassurances an individual may give you, they are non-binding on anyone who replaces him… the wording of the contract would be expected to speak for itself in a legal proceeding I would think. And even if you thought you would prevail in a trial over the interpretation of the wording, could you afford the legal cost to contest it? I would be willing to bet the company could. It just seems too much could go wrong to risk signing such an agreement.

  2. Those clauses look pretty standard to me. I probably would have signed them.

    The first one is probably limited to the duration of the contract. If you are already doing business with one of their clients or the duration of the contract is too long then it would be an issue, but if you’re not likely to do business with one of their clients during the term of the contract, what’s the harm?

    As for the second, I think it would be reasonable to conclude they are talking about the finished application as a whole, not the individual components. If you were a chef creating a new meal for a restaurant, I don’t think a clause like this would ban you from using certain basic ingredients again, but not in the same combination and cooked in the same way.

    I’m not speaking with a lot of experience signing these types of agreements, but I have seen similar clauses.


  3. Contracts are a two way street, what they propose is only an offer.
    Your offer back is to accept or adjust to suit you.

    That puts the emphasis back on them.

    Cross out the relevent words/clauses and initial the changes
    Sign the contract

  4. I think part 1 is fairly reasonable as it seeks to ensure that you will not divulge any confidential information acquired whilst working for the customer. This is a fairly standard clause, and you should feel comfortable in signing a contract with such a clause.

    Part 2 relates to intellectual property and this is more of a grey area. It is very difficult to sign a catch all such as this because it imposes unfair restrictions on you – the consultant. If you were hired to write an entire bespoke application, then unless otherwise agreed that application would be the intellectual property of the customer. However the tools and techniques that you used to deliver the application would NOT, especially if there were taken from a pre-existing code library. If you use something like Excel, effectively you agree that the end result belongs to the customer, but that the individual code modules and programs do not.

    You should be able to use the modules and programs in any future work, PROVIDED that you do not attempt to replicate the application or something so similar that it could be termed to be the same.

    If you create a specific module for the application, then you should not re-use that module, but ther would be nothing to stop you remembering how it was writtem and writing something similar in the future.

    The key differentiator is intent.

    I hope that helps?

  5. You should make it a matter of your standard business practice to adjust these contracts and then send them back for approval. You know what the intent of each of those paragraphs is. Just carefully modify them (you don’t need to be a lawyer) so that the language matches the intent, but still protects your business.
    You can phrase your response to them positively such as, “I received your contract and it looks good – i just modified paragraphs A and B to try and clarify what your intent is and to make it work with our specific relationsihp”.
    The companies want to you modify the contracts to clarify things… this avoids headaches for them as well as you. Chances are the base contract is just boiler-plate legalese that suits their purpose and they haven’t taken the time to adjust it to your situation.

  6. I would have talked to them directly and asked them to clarify the intent of the clauses. However, it is likely that the contract was written by lawyers, who really didn’t have a clue what the business client wanted to protect.

  7. I once had a potential client ask me to give them rights to everything I did for them. I said I couldn’t, because I will not give up my right to use anything from my code library. We agreed that I would not use my code library, and they’d pay for the 4x longer everything would take to build. What finally prevented me from signing was their payment terms: Net 90 days!

  8. Alan: “If you were hired to write an entire bespoke application, then unless otherwise agreed that application would be the intellectual property of the customer.”
    No, if you were hired as a contractor, then unless otherwise agreed, the code belongs to you. (If you are a regular employee, the code belongs to the employer.) Writing code is not considered the same in Copyright Law as writing a novel or a movie script. Few really understand this. But it is the basis of every code library.

  9. The clauses as cited here appear to be consistent with the hire of a full time employee, not that of a consultant for project work. Having negotiated numerous contracts, I simply cross out the “offending” language, replace it with my own, and initial then date the changes.

    After two may be three exchanges, the bugs are worked out of the language and we proceed with the project. In too many cases, the client will use their legal team as an excuse to forego any changes. Your primary contact is likely not in a position to negotiate any changes for fear of any internal repurcusions or consequences accordingly. In other words, s/he is not empowered to represent the company’s legal interests.

    When you present a revised contract as suggested earlier, it is easier for the client to pass it through to their legal team. Your immediate client is then free to discuss the project intent without any legal ramifications and may even be able to speak to them on your behalf.

    As is, I wouldn’t have signed against either clause.

  10. I agree with Hui:

    Although I love the money that big companies pay, I am first and foremost appalled at the amount of arrogant power that corporations wield over lowly individuals. Thus, when something strikes you as unreasonable or unfair, it is almost your duty to cross out the offending passages and put in your initials.

    Even if they won’t go along with it and you decide to sign anyway, you’ve at least demonstrated to them that you won’t just lay down for anything and that you do pay attention to detail (how many people simply sign without reading?).

    And speaking of Jon’s comment on Net 90 days: I am currently awaiting a revision to a contract I have with a client in which they state that payment can be made “within a reasonable time period”. Holy Christ, what the heck is that? They have already verbally told me that 50 days is their waiting period and I’ve lived with that for a year now. So I insisted that they change the contract to say 50 days. And they are balking…..


  11. Companies that put together unenforceable contracts and then, when the stupidity of the clause phraseology is pointed out, refuse to change the clause, are just showing they are unreasonable and impervious to logic. Unless you are in need of revenues*, clients like this should be avoided. In my 20 years of consulting experience, these are the clients that:
    a) pay late and only when pestered;
    b) don’t provide proper SOWs and then complain that the work is not what they wanted,
    c) are more likely to misuse your work product,
    d) are frustrating to work with for all kinds of other reasons.

    * As a consequence of the above, you only get revenues from these clients, not profits.

  12. This is the clause I always add to the contract. I have never had it refused. Once the legal department had a discussion with me but nothing was changed. I have worked with Wall Street banks and other large and small instutitions.

    Addendum to Consultant Agreement:

    Work Product shall not be construed to include Contractor’s Toolset. For the purposes of this Contract, Contractor’s “Toolset” shall mean all hardware, software and all associated methods, techniques and inventions provided to Client by Contractor, and their attendant intellectual property rights, to the extent that such hardware, code, graphics or data and methods, techniques and inventions were created or acquired by Contractor prior to the Effective Date of this Contract; are created or acquired other than in the course of providing Services to Client hereunder; or are independently (i.e. independent of the Client) created or acquired by Contractor in the course of providing Services to Client and are of such a type and nature reasonably appropriate for use in Contractor’s business or to develop or deliver services to other customers. In NO event shall clause of this section include any data or information that is specific to the Client’s business or Customers.

  13. Tushar,

    Michael’s clause is essential. I would go so far as to have a standard contract drawn up where you can write in the client’s name, address and other particulars. There you can spell out how you want to relationship to function. Use it to establish payment terms, mileposts, etc. that doesn’t very much from client to client. You can then go through and make ad hoc changes as necessary. Coming to the negotiating table armed with a contract establishes you as a serious professional providing a valuable service, and not just another code jockey off the street.

    If you do business on a global scale (not sure where you are based, etc.) then you may want contracts drawn up in your major service areas.

    Good luck.

  14. I have found a correlation in the high nineties between clients who insist on NDAs and timewasters. I tend to walk away as this is the strongest signal that potential client will be a pain to work with. There are plenty of reasonable clients still left.
    I had someone send me a nine page NDA before they would send me their non working code. I quoted them a days fee to review the NDA. Shame, the guy needing the help seemed very reasonable, just hamstrung by a new graduate in the legal dept. I did the sums for them:
    cost for legal advice on their contract 1000
    fees for me fixing their problem 1000
    profit – same as going to the beach for the day.

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