Tag: Contract

Exclusivity (aka Noncompete) Provisions in Services Agreements

From time to time I see services agreements with  exclusivity (aka noncompete) provisions. This post breaks down these types of provisions and how you can respond to them.

Let’s first make sure we are talking about the same thing when we refer to an exclusivity provision. A typical exclusivity provision might provide something like the following:

At all times while providing services under this agreement and for a period of 12 months thereafter, Agency shall not perform services for businesses that compete with Client.

While this seems straightforward and maybe even reasonable, there are a number of things an Agency should keep an eye out for:

  • A good first response to a clause like this would be to delete it. For the reasons discussed below, it is a big ask so don’t assume you have to agreement. Make sure it isn’t just dusty boilerplate that the Client doesn’t really care about (many do not).
  • If striking the clause doesn’t work, ask the Client to identify the specific business concerns as applied to your relationship. That will help you identify the real issue and come up with an appropriately drafted restriction. Is the concern confidential information? Or just that they are worried that the design you do for them will show up on a competitor’s website. These are different concerns and there may be ways other than exclusivity to address them.
  • Exclusivity isn’t free. A client asking you to restrict your potential field of clients is basically asking you to take yourself out of certain aspects of the market. This is a big ask! If you consider agreeing to a provision like this, make sure you are getting paid for it.
  • If your Agency has a narrow industry focus (e.g., only do websites for breweries or only do websites for craft breweries in the Pacific Northwest), exclusivity provisions can be very restricting on your ability to take other work and should have a higher price. If you are a general service Agency without industry specialization, you won’t be able to command as high a price for exclusivity (and it is probably less of a concern).
  • If you have a narrow industry focus and you are being hired by a client within that industry, you can remind the Client that they are hiring you expressly because of that focus. Having that focus and working with companies in that industry is what makes you the right agency for the job.
  • It is far more reasonable to ask for exclusivity during the term of the agreement. Exclusivity beyond the term of the engagement (12 months in the above example) should come with a very high price to Agency.
  • If you are negotiating a provision like this, keep an eye out for broad provisions like “businesses that compete with Client.” Judged in hindsight, this can be viewed very broadly and is subject to interpretation. Better approach is to specifically list the companies, or even the business units within companies, that are considered competitive.
  • If you are a large agency, one response is to include language requiring that if you service a competitor, that you must do so with a separate client team and no information access. This has logistical and technical challenges and is  understandably difficult for smaller agencies.
  • If you are forced to agree to an exclusivity clause, its fair to ask for a provision prohibiting the Client from hiring your employees and contractors away from you. While not a direct tit-for-tat, it does give address some of the risk created by an exclusive relationship where your client team works so closely with the Client.

Keep these tips in mind the next time you face an exclusivity provision in a services agreement. Tackling other problems in your services agreement? Find most posts like this in our ongoing series Anatomy of a Services Agreement.

Tax Provisions in Services Agreements

You’ll often see service agreement provisions making a particular party responsible for taxes. This post breaks down what these provisions do and how you should handle them.

A typical provision might read something like this:

Any charges payable under this Agreement are exclusive of any applicable taxes, tariff surcharges or other like amounts assessed by any governmental entity arising as a result of the provision of the Services by the Agency to the Client under this Agreement and such shall be payable by the Client to the Agency in addition to all other charges payable hereunder.

That is more than a mouthful and could certainly be written more simply. But the upshot is pretty straight forward:

  • This says that (i) that the Agency’s fee does not include any applicable taxes and (ii) if taxes are assessed with respect to the services provided, that the Client is responsible for paying those taxes.
  • The taxes at issue here are things like sales and use taxes. For these types of taxes (if they apply to your transaction) the Agency has a duty to collect those taxes from the Client and remit them to the government.
  • Note that this IS NOT referring to income taxes imposed on the Agency’s earnings. You are still responsible for those.
  • Be sure to supplement a provision like this with a clause that allows you to invoice for taxes after the project is complete.

A simpler provision that incorporates these recommendations might read:

Client shall pay Agency the fees described in the SOW plus any applicable taxes, even if assessed after the project is complete.

See this summary for more posts examining the Anatomy of a Services Agreement.

Attorneys’ Fee Provisions in Creative Services Agreements

You’ve no doubt seen an attorney fee clause in contracts that have been presented to you. But sometimes its missing or differently worded. This post aims to clarify these provisions as applied to providers of creative services.

An attorneys’ fee clause, usually appearing toward the end of the agreement, typically provides something such as:

The prevailing party in any dispute with respect to this Agreement is entitled to recover reasonable attorneys’ fees, costs, and expenses incurred with respect to such dispute and in any appeal.

The meaning is pretty straightforward – the loser in a dispute pays the winner’s attorney fees. If this clause is missing, then each party pays their own attorneys’ fees (at least in the US). The purpose of the provision is to discourage frivolous lawsuits since the loser risks paying the winner’s fees. But let’s take a look at this provision in the context of the creative service provider:

  • As a general rule, you should probably want your contract to have an attorneys’ fee clause. In the unlikely event of a dispute, it can make a big difference if you have to sue to recover.
  • You’ll sometimes see a one-sided attorneys’ fee clause – that only your client collects in a dispute. This is onerous and overreaching. If you see a clause like this, be sure to edit make it benefit both parties. If the other side won’t edit the provision, enter the relationship with caution. (Note: some states automatically treat any attorneys’ fee clause as mutual, but not every state!)
  • When you are doing work in your wheelhouse, its generally more likely than not that you’ll be the one having to file suit (to collect payment). So, yes, this should be in the contract (or you should add it if you are presented with a draft where it is missing).
  • Note that in some cases, attorneys’ fees can be collected by statute, regardless of what the contract says. Some state small dispute statutes allow for collection of attorney fees. Similarly, enforcing a registered copyright allows for collection of attorney fees.

Learn about more common provisions in our (ongoing) series, Anatomy of a Services Agreement.