Contract Hacks: Reduce Your Risk

Every time you sign a contract, dear Freelancer, you make some pretty big promises.

And if you break those promises, on purpose or accidentally, you might be on the hook for some pretty big damages.

Here’s how to hack your contracts to reduce the risk of being stuck holding the bag.

Make Reasonable Promises
I’m going to guess that when you sign a contract you know perfectly well that by signing on that dotted line you are making a promise to the other person. I’m also going to guess that the promises you’re focusing on are about the work: who will do it, when, and when payment is due.

By Tomas Fano via

By Tomas Fano via

Those promises are important, but they aren’t the only promises you’re making.

For most creative freelancers there is a clause in the contract that promises the freelancer is the creator of the thing he or she is producing for the client. And if they aren’t the creator, they promise they have the intellectual property rights necessary so the client won’t be accused of infringement.

Pretty important promises if you’re creating a website, newsletter, logo or app for someone. And perfectly reasonable in many circumstances.

But what if the promise is a bit more broad that “I promise I made it”?

What if it asks you to promise that what you’ve created doesn’t violate any “law, rule, statute, ordinance, property right, whether real or intellectual, contractual right or other legal requirement, limitation or right”?

When you don’t, or can’t, know whether the promise you’re making is on the up and up, but based on what you do know you think it is, add the words “to the best of [my] knowledge.”

By Stuart Caie

By Stuart Caie

“Contractor promises and affirms that…” becomes “Contractor promises and affirms that, to the best of Contractor’s knowledge,….”

That language can help limit your promise to what you actually know. Which is important because….

Know How Big Your Promi$e$ Are
To truly understand how big a promise you’re making, you have to read that promise in context of the indemnity clause.

The essence of an indemnity clause is “if the promises I made you are false, or if I don’t do something I promised I would, I’ll pay for the harm you suffer as a result.”

It is the pinky swear to the representations you made elsewhere in the contract; the “No, For Real” clause.

Some indemnity clauses only protect against direct, provable harms. Others try to cast a much wider net.

If you’re asked to agree to an indemnity clause, look at it closely. Are you on the hook for claims that are “litigated to completion” or for any and all claims no matter how frivolous?

Do the claims have to be related to the work you’ve done for the client, or is it any old harm that might relate to the contract?

In a perfect world you’d only be on the hook for successful claims that are directly related to the promises you make and the actions you take.

By Michael Heiss via

By Michael Heiss via

Why? Because those are things you can control. You can control what you promise and how you fulfill your end of the deal. You can’t control whether a patent troll thinks your client is a tasty morsel.

Hack your contracts by making sure you’re only indemnifying the other side for claims or harms that are related to promises you can control.

You can also hack these sections by limiting your liability with a cap. The cap says, “I’ll pay if you’re harmed, but only this much; beyond that you’re on your own.”

A common cap in freelancing contracts is the amount that you’re paid under the contract. “…in no instance will Contractor’s liability exceed the amount paid to Contractor under this agreement.”

If you’re working with a business, they’re likely to be a lot more anxious over revising the indemnity section, particularly by giving it a cap. It’s their insurance policy.

If you hack this section of a contract, be sure to explain to the client that you’re happy to stand behind the promises you’re making, you just want to make sure that you’ll actually be able to provide the protection they’re seeking.

By Tambako The Jaguar via

By Tambako The Jaguar via

Pay attention to what you’re promising and making sure your indemnity obligations are directly tied to those promises. It might help save you from a whole mess of trouble.

Categories: Contract Hacks

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