5 Unenforceable Contract Provisions
If you're in any kind of business, you're also in the contract business -- negotiating, writing, signing, and enforcing. In many ways, the contracts we sign end up running our businesses.
We just have to be sure they don't end up ruining our businesses. We want clear and concise terms that will be enforceable, if necessary. But just because a clause is in a signed contract doesn't mean a court will enforce it. Let's take a look at a few common contract provisions, and whether they're enforceable:
1. Non-Compete Clause.
Near-universal in employment contracts, non-compete agreements attempt to protect trade secrets and prevent both employee and customer poaching. Here's the problem: courts don't really like trying to tell people where they can and cannot work. So chances are a broad, boilerplate non-compete won't stick.
In order to have a valid non-compete clause, you need:
- Consideration (the bound party gets something in return);
- Protection of business interests or trade secrets; and
- Realistic and reasonable terms.
2. Non-Disparagement Clause.
No one likes to be bad-mouthed, especially business owners, and most especially on the Internet where everyone can see. Which is why some businesses have tried to sue customers who left unflattering reviews online.
But these clauses are generally unenforceable. California banned them and the feds are trying to do the same. Your best bet is to run a quality business, own up to mistakes, and the reviews will take care of themselves.
3. Arbitration Clause.
And no one likes to be dragged into court. An arbitration clause means that any legal dispute will go to arbitration or mediation rather than to trial. In order to be enforceable any arbitration clause needs to include specifics about the arbitration process -- if they're too vague, there won't be a way to arbitration. It may also depend on whether the challenge is against the whole clause, or just a part of it.
4. Liability Waivers.
Wouldn't it be easier if you weren't responsible for injuries at your place of business? So why not have clients and customers waive an right to any injury claim? Be careful -- total waivers are generally found to be overly broad, and waivers for intentional or reckless acts can be unconscionable. However, a limited waiver for negligence might be OK.
5. Employee Handbooks.
They may not be a clause in the contract, but many employers try to enforce their terms as if they are. Whether your employee handbook is an enforceable contract will largely depend on what state you're in. Thirty states will enforce handbook terms so long as they contain specific language. But again, vague promises like "all employees will be treated fairly" will probably not be enforced in court.
To make sure your business doesn't fall prey to one of these unenforceable contract provisions, enlist the help of an experienced commercial lawyer to help draft and review your business contracts.
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