Recently two very different situations crossed my desk: an executive offered a new stock option scheme; and a manufacturer concerned about the lack of contractual relationships with their distributor/sales representatives.

Both situations emphasize the need and importance of properly drafted contracts and a “total review” of their interaction with other arrangements; with the executive, what impact would the stock plan have on the executive’s employment agreement and other contracts? With the manufacturer, what types of control do they have over pricing, and, of course, performance?

As it relates to the executive, K&G needs to review the employment contracts and bonus plans, to have a clear understanding of the expectations of each party and how would the existing agreements be affected by the stock plan. What happens in the event of a termination? How is this stock plan impacted by termination; is there any difference between who terminates: the company or the employee?

As it relates to the manufacturer, besides the following elements: Obligations and Responsibilities – what each party needs to do under the contract; Performance – how well each party will perform; Payment Terms – detailing how payments will be made; Liabilities – how liability and responsibilities will be handled once there is a problem; Breach of Contract – what will happen if either side fails to fulfill their obligations; there should be provisions for how house accounts are to be handled; does the representative get paid for servicing accounts in their territory; and/or are they obligated to service them; how much latitude does the representative have in the final price of the product?

All too many times, I am asked to make the contract simple: I do not want to have too much ‘legalese’. There is a difference between keeping it simple and making certain it is fair to all parties. Disputes cannot always be avoided, but their likelihood and the prospect of an uncertain or negative outcome increases to the extent that proper care has not been taken at the beginning of the relationship. I have written several times: “go to the end of the movie first and read the credits!” Care must be taken about how the end of the relationship is handled.

It is in the interests of both contracting parties to maximize contractual clarity and certainty. The issue of one party seeking to take contractual advantage of the other – failure to identify and attempt to avoid unfair contractual provisions – is simply poor business practice. Due diligence at the time of formation of the contract can avoid much time and expense if there are subsequent contract disputes.

Lastly, an often-overlooked concept is to agree on confidentiality and non-disclosure provisions protecting sensitive information, as well as non-disparagement. As part of the agreement, the parties should be legally bound to hold in secrecy the information shared among them, and the party that violates this confidentiality would be held liable. Equally important is, after the relationship ends, for whatever reason, to agree not to disparage the other.