How-to Negotiate Contracts-A Cautionary Tale

Today I'm taking a moment to talk about contracts, how to negotiate them and why I won't sign a crappy one ever again.

Some contracts are straight forward and simple.  These are usually short, sweet and to the point. We agree to work together, we agree not to compete, we agree not to screw each other over and we agree to terms of compensation, length of relationship and details of relationship.

These contracts look something like this:
Party A will provide Party B with ideas/concept/work (product.)  Party B will produce the product.  Both parties agree not to compete, meaning not to sell a similar product that would jeopardize the success of the product being referred to in the contract.  Party B will provide Party A with a specific percentage of the profits of the sale of the product.  Both parties agree to perform certain specific duties.  Both parties agree to keep the details of the product confidential.   Both parties agree to a length of relationship that is at will and can be renewed when it expires.


The companies who present these kinds of contracts are usually fair minded and flexible.  When you find companies like this, do a happy dance. 

Some contracts are slightly more nuanced and complicated.  These are usually many pages long with confusing language and lots of clauses and subsections and these always favor the party who drafts them.  Really all contracts favor the party who drafts them, but some to an extreme.  Be wary of complicated contracts. 

These contracts look something like this:
We agree to work together, we agree to not compete, we agree that Party A will not screw Party B over (Party B may screw Party A over but it's unclear because the language is complicated.)  Party B may pay Party A or may not pay Party A or may pay Party A a percentage of what they owe them, but it's unclear if Party A works too hard or the product makes too much money how much Party B will pay.  (I have seen two such contracts over the past year, where they are dunning you for the success of the product or your willingness to work hard.  This is totally confusing and antithetical to anything resembling common sense.)  Party B will pay Party A a small sum compared to the prevailing rate and it may be really hard to determine if they start splitting hairs with percentages based on where an item is sold.  This is particularly true for books.  The contract will renew perpetually if the product succeeds as long as it succeeds.  Party B will dun Party A for a litany of expenses related to bringing the product to market thereby significantly reducing the potential for income for Party A.  Party A releases rights to ownership (copyright) of their idea and control over how it's executed.  Party A can't work with anyone else in the industry on anything, period, yet Party B is not paying enough to survive or sometimes anything until the product gets to market. Party B will agree regardless of whether the product ever gets to market upon termination of the relationship to not compete for 1 to 2 or more years!  Yes several years, regardless of whether the product gets to market.  Note that the entity presenting the contact never, ever, ever agrees to not compete upon termination of the relationship.  Yup, they can hire the competition at any time, but Party A has to agree not to work with anyone at all who might vaguely be construed as competition, or just not to work in their industry.  At all.  For 1, 2, 3, 4 even 5 years!

In complicated contracts, the creative always takes the hit.  That is the way the ball bounces.  That is, unless you can find a company willing to work with you who will present a straight forward contract, be willing to share the burden of risk and not restrict you from making a living if things don't work out.  Courts don't like non-competes, but once you've signed one, you can end up in court battling it out for the duration.  It's best not to sign, but then again it's good to work and therein lies the dilemma.

It's easy to get so excited about having a deal that you let some of the complexities of these contracts slip past you.  The language can be tricky.  The details can be fuzzy. It all sounds so good when folks are smiling, shaking your hand and blowing air up your skirt.  Without a lawyer to review (and sometimes even with a lawyer at your side) you can end up with a very raw deal.

Get a good lawyer.  Have them review the contract.  Take out a Sharpee and begin marking out anything you don't like.  Always ask lots of questions.  What is this?  What does this mean?  Do we need that?  Will they take that out?

Be specific.  If you want more, ask for it.  If you want something added to the mix, ask for that.  You have to ask, they won't offer it.  This is when you need to be both a diplomat and a pirate.  Never negotiate from a place of desperation.  Also, and this is a big one, trust your gut instinct.  Are you feeling good about this situation or feeling sick.  If you're feeling sick, run.  Trust me.

How much of you can you give away?  How many deals can you make?  How long can you afford to not work or be limited in your ability to work?  How much are you really going to get out of the deal?  What are you and your big ideas worth in the final analysis?  What is your bottom line?  These are all important questions to ponder.

My hard earned advice to you, no matter how much you want it to work out, you have to always be willing to walk away.  I have, personally, walked away from some pretty big opportunities because the contracts were horrid.  I have, alas, signed a few crappy contracts because I was desperate.  I am currently starting year two of a two year non-compete from a crappy contract I never should have signed.  I was sick about the entire negotiation process and I did not run.  I kept telling myself that it was just nerves and it was a great opportunity.  My intuition, however, was telling me something else.  Never, ever again will I put myself in that position. 

Take my hard earned advice to heart.  Never, ever sign a crappy contract.



Unknown said...

Sage advice, my dear.

Year two will be through before you know it. has *such* a way of marching on.

Toltec Jewels for Jewel School Friends said...

I hope year two flies by! I had no idea about contracts like this, but assumed a job was well, a job. A position filled by the person most likely to succeed at it, grow from it, and build it up for the benefit of all -- company and employee. And I just can't imagine being under the control of a yuck job or disrespectful company -- after i'm gone baby gone!! So sorry this happened, Margot. For it's worth, may I just convey how spectacular you are to all of us out there? You are! And countless people are forever empowered and courageously creative now because of YOU!