| News March 2011 contract negotiation Module |  |  |  | |
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| |  Negotiate a profitable contract with US partners: Highlights from DABF seminar
Article by: Sia Iben Normann Pedersen,
DABF Intern
Thanks to all who participated in our recent Contract Negotiation seminar. Thanks also to E. Pihl & Søn for their hospitality, and to our guest speakers for generously sharing their knowledge and experience:
Finn Martensen, Advokat (H), Attorney at Law, Martensen Wright Law Firm
Ed Wright, Attorney at Law, Martensen Wright Law Firm
Kimberly Blanchard, Practice Group Leader, Aperian Global
In case you weren’t able to attend, we’ve created this summary of the legal presentation to share with you. According to Finn Martensen, one critical reason that Danish companies get into trouble in the US is because of a poorly drafted contract – or even total lack of a contract. Drafting a quality contract will avoid conflicts and minimize risk.
Nature of the US contract
Danish companies can expect another contract tradition in the US than they are used to in Denmark. When stating negotiations, the Americans can appear somewhat aggressive and the first contract draft may include things that are far from acceptable. Facing a seemingly aggressive attitude:
• Don’t be offended. Stay calm and remember that the American style is just another way of doing things!
• Be aware that a strong counter-draft is expected.
• Remember that even when invisible, there is always a lawyer behind the US contract
It is valuable to draft a Letter of Intent (not binding) at an early state of negotiation containing: timeline, purpose and key elements as well as two binding elements: a confidentiality agreement and a notion of agreement.
The binding contract
The Statute of Frauds is a rule of law requiring certain kinds of contracts to be written (not verbal) and signed by all parties for an agreement to be binding. In the US, a handshake does NOT constitute a binding agreement. Therefore, to avoid any confusion, make sure that your agreements are written and signed.
The importance of details
The typical US contract differs from the typical Danish contract in that it is much more detailed, including even self-explanatory information. In case of a dispute, the Parol Evidence Rule generally prevents other evidence of the agreement (verbal agreements, etc) from being considered for the resolution. A detailed contract minimizes the risk of conflict by making the intent of the agreement clear so the judge will not have to interpret your intentions.
The content of the contract
The contract should reflect the parties’ understanding. Think about what you want the arrangement to be and then consider the questions: who, what, where and when. Use standard contracts only for inspiration. It often pays to write what you want the agreement to be and then have a lawyer word the contract.
Valuable elements to include in the contract:
- Key operative elements
- The parties’ rights and obligations
- What conditions that must be fulfilled for the contract to be valid
- What constitutes a party’s default and the consequences of default
- Termination / Exit provision
- When to renegotiate and what procedure to follow
- Choice of Law Clause: Consider whether US or Danish law should be applied. Remember if choosing US law that federal and state laws differs, and laws in the 50 individual states also differ from each other.
- Dispute Resolution Clause: if you do not have a Dispute Resolution Clause, in your contract you will go to court to settle a dispute. A Dispute Resolution Clause means that the parties have agreed upon other methods for solving a dispute. Two possibilities of such methods outside the courtroom are: mediation (the contract can state that a certain period of mediation is required) or binding arbitration: here a judicial person will rule in favor of one of the parties.
It pays to stay out of court, which costs both time and money. Mediation is often successful and may solve the dispute in 30 days (depending on your Dispute Resolution Clause). Binding arbitration often settles a dispute in six months compared to perhaps five years if you choose to settle your dispute in court.
Considerations for employment contracts
Like a general contract, an employment contract reduces your company’s risk. But again, remember that state laws can vary greatly. For example, non-compete clauses are unenforceable in California except for cases where one partner sells his share of the business. Vacation laws also differ between the states. And it is important to note that in discrimination and sexual harassment cases, the Choice of Law clause can be trumped.
Create an employee handbook that describes in detail the rules and conduct expected from your company and from the employee. Include these rules and conduct in your employment contract and have the contract reviewed by a lawyer from the state in question. Remember to pay special attention to discrimination and sexual harassment issues.
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