The 2 Big Red Flags you should be looking out for in contracts

Ah contracts again, my absolute favourite topic (yes I am a big contract geek, I just can’t help it!).

Today is all about the no-no’s you should be aware of in contracts. You know, those big red flags that should set off alarm bells when they come up.

These could be found in any contract – a client one, an employment one, a supplier one or even a manufacturer contract (just to name a couple).

I’ve heard many a horror story of people signing a contract they either didn’t read, or didn’t fully understand. Those contracts contained one of the clauses mentioned below, which in turn caused a BUNCH of issues…the worst being a business having to fully shut down operation. Not good at all!

I want you to be aware of these, so when you’re reading your contracts (and please always do) you know to be wary.

Indemnities

The words indemnity, indemnify or 'hold harmless' should ring alarm bells in your mind straight away when reading a contract.

The words indemnity are pretty much a fancy way of saying that it's MUCH easier for the other side of the contract to sue you. 

If you breach a contract in normal terms (i.e., without an indemnity) the other party will always have to prove in a court case that you've caused them loss / damage (like loss of money, products etc).

When an indemnity is involved the court literally don't need any proof that loss was incurred, all that needs to be shown is that a contract breach happened.

Think of it this way, you could breach a contract with an indemnity in it, not cause ANY sort of loss or damage and STILL be sued by them for loads of money.

Now indemnities aren't ALWAYS bad, there are times when it's ok to accept it. This is mostly when you're dealing things that are high risk, like:

- Confidentiality breaches

- Intellectual Property breaches

- Data Protection Breaches

Long story short, be wary when this pops up, and if you aren't sure talk to a solicitor!

Non-competes

You might find a non-compete in a contract for services or an employment contract. They aren't uncommon, but what you need to be aware of is the extensiveness of the clause.

This can cover a few things, for example where one party agrees to either not start in a similar profession or trade in competition against the other party - think leaving your employment and starting a competitor against them. It could also stop individuals using information of their previous companies after they leave employment. 

Be wary of how extensive these clauses are - you don't want to be tied down for a huge period of time with unfair 'rules' in place that could halt or damage your plans / business.

One time, we had a client sign a contract for services with another business. They didn't read the contract, which contained a very ruthless non-compete, which basically stated that our client couldn't work with anyone other than them...that client had to completely halt their business because of this.

To conclude

BE WARY! Always always always (did I mention always?) review the contracts you have to sign.

And not only that, make sure you understand what you're signing up to. If you're ever unsure, do not just sign it. Speak to a solicitor, this is what we're here for!