Sometimes I think end user license agreements have the same effect on our perception of contracts as false fire alarms have on emergencies: total indifference. Yet there are probably more people burned by not taking contracts seriously than those who ignore real fire alarms, albeit with lesser consequences. People are forgetting a key lesson from our parents and grandparents: “If you didn't read and understand it, don't sign it.”
Most people consider contracts one last bureaucratic step that can be ignored and simply sign after glancing over it like bad-ass Pierce Brosnan in 'The Thomas Crown Affair'. After all, it's not like you'd pass on the job offer because of some clause in a contract. You also won't want to start your employment off by being the picky jerk who has to have everything 'just so' – you're a team player! Finally, they said it was a 'standard contract' that 'everyone signs,' so it can't be that bad, right?
Right. And if you believe that I'm sure there are loads of people from 2005 who want to give you a new mortgage on your home.
First, a little on the importance of contracts. Their purpose is keep good relations through a clear statement of expectations; NOT to strong-arm one party to be a slave to the other. It can take as little as a week for a person's memory to augment reality, so spending an hour writing down everyone's expectations will be a welcome guide during future differences of opinion. Even an email with key points outlined can be sufficient for referencing when things don't go as you hoped 6 months down the road.
Here are a few things you will probably want to agree on in writing before starting any work:
-What do you expect to give? Work? Time? Access to your contacts?
-What do you expect to get? Money, vacation, holidays, benefits, and/or equity?
-How much will be paid and when?
-How much availability is expected?
-Any other expectations such as non-compete, nondisclosure, assignment of IP, etc?
And these are particularly important for those taking on consulting work:
-When does work start?
-When is the work complete?
-What are the deliverables?
-What support is expected after deliverables have been met?
Usually the hiring company already has a standard employment contract written by a lawyer to be broad and cover all cases. It is an unfortunate reality that the litigious nature of society has morphed some employment contracts from a simple, conceptual agreement between two reasonable people to a long-winded insurance policy written by overcautious lawyers. To be fair, the company probably had a bad experience with some litigation and learned to be more protective the hard way.
So let's take the example of Jim who has been handed a contract for a circuit design position with a large cellphone manufacturer and found that there are a couple of clauses that make him uncomfortable. That's ok – he can make suggestions for changing it in a way that will allow him to live his life while still protecting the concerns of the company. The key is how he approaches the problem. Here are the non-compete and the assignment of IP clauses that Jim doesn't like, which are very common concerns for creative minds.
Noncompetition. During the two (2) year period commencing on the date of Employee's completion of services (the "Noncompetition Period"), Employee will not, without the prior written consent of the Company, either directly or indirectly (a) solicit similar business from, or compete with the Company for the business of, any customer or vendor of the Company; or (b) operate, control, advise, be employed or engaged by, perform any consulting services for or invest in, any person or entity who or which, at any time during the Noncompetition Period, is or is planning to be in competition with, or engaged in the same or similar conduct, activities, or business as the Company is currently in or plans to be in.
Disclosure and Assignment of Proprietary Information. Employee will promptly disclose in writing to the Company all improvements, discoveries, ideas or inventions, made or conceived by Employee, acting alone or in conjunction with others, during Employee's employment with the Company (“Improvements”). Employee shall not disclose any Improvement to any person except the Company and all Improvements shall be the sole and exclusive property of, and are hereby assigned to, the Company. At the request of the Company, Employee will execute such applications, statements, assignments or other documents, furnish such information and data and take all such other action (including, without limitation, the giving of testimony) as the Company may from time to time reasonably request in order to obtain for the Company a registration or patent in the United States or any foreign country covering or pertaining to any Improvement.
Here are the reasons that Jim is uncomfortable with the contract:
The non-compete clause seems broad. First, how is an engineer supposed to know what activities the business PLANS to be in other than the projects he or she works on? As written, if the company plans to enter a totally new industry in 10 years, the employee is barred from working in that field if he quits tomorrow. This is probably more appropriate for a business development or executive position.
All electronics vendors are used by everyone. It might make sense for engineers working on custom mechanical parts to restrict future vendor use, but in the case of an EE's job this is too restrictive.
The company gets ownership to all ideas Jim comes up with, regardless of when he worked on it or what the idea relates to. But Jim is a mountain biker and is passionately developing a new suspension system that could be the next great thing. He wants to own his inventions and start a business on the side to make some money from his hobby, which has nothing to do with cellphones.
All of Jim's concerns are reasonable, so how could he reconcile the differences? First, he needs to put himself in the company's shoes. It is obvious that they don't want Jim running to their competition and giving away his learned secrets a day after he quits. They also want to own the ideas they are paying Jim to create, even if he thinks of a solution while he is out on his daily run. All of that is totally reasonable.
Here is what most people don't realize about contract negotiations: it is a back and fourth. They proposed a contract that Jim doesn't like, so the ball is in his court to propose a change that will make both parties happy. Simply saying “I'm not signing that” is a great way for him to be perceived as an uncooperative jerk. Instead, Jim will explain his situation and that he has come up with a solution that he thinks will protect the company's interests while allowing him to live life. Here is how he wants to change the contract:
Noncompetition. During the two (2) year period commencing on the date of Employee's completion of services (the "Noncompetition Period"), Employee will not, without the prior written consent of the Company, either directly or indirectly (a) solicit similar business from, or compete with the Company for the business of, any customer or vendor of the Company; or (b) operate, control, advise, be employed or engaged by, perform any consulting services for or invest in, any person or entity who or which, at any time during the Noncompetition Period, is or is planning to be in competition with, or engaged in the same or similar conduct, activities, or business as the Company is currently in or plans to be in.
Disclosure and Assignment of Proprietary Information. Employee will promptly disclose in writing to the Company all improvements, discoveries, ideas or inventions, made or conceived by Employee, acting alone or in conjunction with others, relating to the business of the company, during Employee's employment with the Company (“Improvements”). Employee shall not disclose any Improvement to any person except the Company and all Improvements shall be the sole and exclusive property of, and are hereby assigned to, the Company. At the request of the Company, Employee will execute such applications, statements, assignments or other documents, furnish such information and data and take all such other action (including, without limitation, the giving of testimony) as the Company may from time to time reasonably request in order to obtain for the Company a registration or patent in the United States or any foreign country covering or pertaining to any Improvement.
Most likely the company will see Jim's point and work with him to come up with something that should make everyone happy for the length of the contract. Which brings me to my last point: the contract is not the end-all-be-all. If something happens that changes the effectiveness of the contract, it can be revisited at any time. Let's say Jim's employer gets into the bicycling electronics business. Given that drastic change, it would be good for Jim to make sure his contract reflects his ability to continue operating his bike suspension company. If not, it is best to bring up problems earlier rather than later.
I should mention that it is possible that the person at the other side of the negotiation table doesn't want the extra work of getting changes to a contract approved. They may say things that would encourage you to just sign the paper as-is and get to work. Perhaps they will even seduce you by playing the Pierce Brosnan clip from above. This should give you a hint to the quality of employee relations with the company, but in the end you will have to make your own call on what to do. Here are a few things Jim could say if he is given a hard time:
-Do you think it is reasonable that the company owns the rights to my bike project, preventing me from chasing my dreams on my own time?
-How would my proposed changes put the company in a vulnerable position?
-Can you think of a way to change this to allow us both to be comfortable?
The key to success is the same as solving any engineering challenge: understand all sides of the problem and propose solutions instead of just pointing out why “That'll never work.”
-Dave Young
