As leadership teams evaluate how the COVID-19 coronavirus will impact business continuity, we’re sharing guidance to help understand your contract options. Of course, the language of specific agreements will vary. However, this information may be useful to begin assessing both your role as a product and/or service provider, as well as your vendors’ respective responsibilities.
1. Force Majeure: These provisions permit delivery delays, or may wholly excuse performance, due to “acts of god” beyond your reasonable control. Note that force majeure provisions often will not excuse untimely payment of fees due to vendors. But, you can still request an exception.
2. Term and Termination: Commercial contracts typically include specific terms about when and how parties can terminate . In some circumstances, immediate termination is permitted. More commonly, advance written notice is required. And, permitted reasons for termination may vary. As you’re evaluating resources and budgets in the coming days and weeks, it may be helpful to consider the events and notice timelines necessary to terminate a contract.
3. Contract Changes: Many contracts permit changes only with written consent by authorized representatives of both parties. In those instances, there may also be specific notice provisions indicating how contract changes must be shared with your counter-party (ie via certified mail, email or even fax). However, particularly for SaaS providers, some contracts permit unilateral notice, whether online or otherwise. Be especially mindful of any verbal agreements, which could be interpreted with different understandings. Confirmation in writing is best practice. While in person contact is presently discouraged, confirmation via email exchange and/or with electronic signature may be helpful. Also, keep track of any contract changes by safely storing any updated terms together with your other contracts.
4. New Product and Service Offerings: While response to the coronavirus pandemic may require that you adapt, delay or eliminate certain products or services, it could likewise create opportunities to introduce others. This may be reflected in change orders, term sheets, or even via email. As always, it’s important to be clear as to what you’re providing, the related costs, and associated payment terms. If appropriate, relating the new offerings to an existing contract could save time in lieu of negotiating new terms, while also maintaining important legal protections.
5. Intellectual Property and Employment: Employees hold key intellectual property belonging to your company, and they may have access to some owned by your customers. As companies transition to remote work and perhaps reductions in force, it’s critical to prepare for safeguarding trade secrets like business plans, customer lists, formulae, pricing, marketing and sales initiatives, and similar information that provides you with a competitive business advantage. Reinforce the confidentiality of those resources, and provide employees and vendors with guidance around how to best shield sensitive information. For example, maintain strong passwords, lock laptops when not in use, and have critical business conversations in private whenever possible.
6. Indemnification Protections: These terms indicate the areas where you have responsibility to hold others harmless, and where they likewise have responsibilities to protect you. Indemnifications may be triggered by contract breach, negligence, intellectual property infringements, and violating confidentiality terms, among others. These provisions often have important time limits for notifying other parties if they owe you protection, so keep aware of those parameters.
7. Insurance and Risk Management: Many contracts include required insurance provisions. Indeed, it may be a breach of contract if you do not provide timely evidence of that insurance. Now is a good time to contact your broker or carrier to consider how your coverage may apply to the current unique business circumstances, particularly in relation to errors and omissions, business interruption and contract breach.
8. Independent Contractors: If you need additional and/or substitute support due to employee illness, temporary unavailability, or otherwise, you may solicit independent contractors. State law varies in relation to distinguishing employees from independent contractors, so the assessment is not simplistic. However, as a baseline, it’s prudent to enter an Independent Contractor Agreement. Among other terms, it should plainly state that the service provider is not your employee, does not act under your control, and is responsible for payment of their own taxes. Limit direction and management of independent contractors to avoid the appearance of an employment relationship.
Please share this with others who may benefit from the information. As we all adapt, the HOLMES@LAW team is available to support you. Our attorneys have decades of experience advising midsize companies. And, we’re just an email or call away to answer quick questions, review agreements to clarify your roles and responsibilities, and help you strategize how best to serve your teams and customers.
In addition to addressing specific legal issues, we can assist with strategic planning around business continuity, adapting product and service offerings, and evolving risk assessments. Likewise, we’re happy to make connections with our network of professionals to help address any additional resources that your team may need in these unusual times.
On a personal note, I’m turning to my faith, and I wish you and yours every blessing. And to quote Beyoncé, as I’m apt to do, let’s all "get in formation". Supporting one another, I’m confident that we’ll manage through this together.
JoAnn Holmes ("Jo") is the founder of HOLMES@LAW. The firm helps innovative 7 and 8 figure companies grow recurring intellectual property revenue, negotiate successful business contracts, and implement profitable legal strategy. Learn more about our Assure™ strategy services to monetize IP, establish a sound legal foundation, and streamline smart business decisions. Our Business Ally™ contract subscriptions help clients stop leaving money on the table, and protect your bottom line.
Holmes, How … about the Disclaimers?
Information shared by JoAnn Holmes and/or HOLMES@LAW, LLC ("We or Us") is for educational purposes only. It is not legal advice. Each situation is unique, so the information We share may not be relevant to your circumstance. Until you enter a formal engagement agreement with Us, We are not your legal counsel, and no attorney-client relationship exists. So, please do not share any confidential information with Us, and please only interact with Us if you agree to these ground rules. Thanks!
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