Employers have been using restrictive covenant agreements – contracts that contain non-compete, customer non-solicitation, employee non-solicitation, or non-disclosure of confidential information – with increasing frequency in recent times, writes Michael Elkon with Fisher Phillips.

“Increased media attention on the practice of forcing lower-level employees to sign non-compete covenants, combined with the widely publicized report on non-compete restrictions issued by the Obama White House in its waning days, has led to an increase in the number of reported cases. Further, several states are passing new laws or considering changes to existing laws on the subject,” he explains.

He describes three basic steps a company can take to reduce the chances of a lawsuit from a competitor, or at least put the company in a favorable position if litigation is threatened.

These include “Ask questions on the front end,” “Structure the job on the front end to ensure compliance,” and “Emphasize the importance of purging all former employer materials.”

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The purpose of a settlement and release agreement is to fully and finally dispose of a disputed matter, explains Stacy L. La Scala, a neutral writing for JAMS.

“However, more and more often, a dispute cannot be fully resolved where non­parties to the dispute have contributed defense and indemnity amounts on behalf of one or more of the parties and have reserved the right to seek recovery of those amounts in subsequent litigation,” he cautions.

In the article, published on JDSupra.com, he writes:

In particular, where insurance carriers have actually provided a defense and/or indemnity in an action, those carriers in a number of jurisdictions have potential rights against their insureds, pursuant to reservation of rights for uncovered claims; potential rights against those entities who are principally responsible for the loss; and potential rights against contractually obligated indemnitors of their insureds. The carriers are typically not part of the action and are not signatories to the settlement agreement.

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By Stephen F. Pinson
Scott & Scott LLP

Image by Yoel Ben-Avraham

Software as a Service and Cloud Service offerings have become ubiquitous digital platforms for many enterprises and small businesses in their quests to provide a single unified platform to their employees and customers. Providers offering Software as a Service and Cloud Services allow end users to access software and infrastructure remotely from any location and storing data with a provider. Because of the risks associated with storing data in the cloud and the need for uninterrupted access to the data, businesses want to be sure that they understand their requirements when entering into a cloud service agreement with a provider. The following is a list of suggested requirements when negotiating Software as a Service or Cloud Service agreement (these are not in any particular order):

1. Demarcation

A demarcation point is typically defined to establish the point at which the service provider’s obligations under the contract end and the customer’s responsibilities begin. Demarcation points are often used in warranties and service level agreements to assure customers that services will be provided up to the point of demarcation. This creates a clear delineation of responsibility to calculate service level credits, and anything that occurred on the customer’s side of the demarcation point, will not be a breach of warranty or entitle the customer to service level credits.

2. Service availability

Service availability relates to the ability of a business to access the software and/or the data at all times. Businesses want to ensure that they have access to the provider’s services and the ability to retrieve and use the data stored on the provider’s systems. Service interruptions generally occur when: a server is down, the internet connection fails, provider withholding service because of a fee dispute, natural disaster at the data center, or the provider closing its doors because of bankruptcy. In any event, business should insist that provisions covering service availability and service levels are outlined in the agreement.

3. Service levels & Service Level Credits

There are two general approaches to service levels or service guarantees. One is the time it will take the service provider to respond to an incident, the other is the guaranteed availability of the systems (i.e., uptime). Service levels are typically outlined in a service level agreement (an SLA). The contract should outline what the provider will guarantee in terms of uptime or response times. If the provider fails to meet the guarantees, the contract should outline whether the end user can request a service level credit. Additionally, business should consider including a right to terminate if the provider consistently fails to meet the service guarantees.

4. Data – Ownership rights, security, backups, and conversion

Business customers must be mindful that their data is among the most important information they own, and ensuring the cloud service provider treats that data appropriately should be one of the paramount issues when negotiating a cloud service agreement. Business must ensure that they own the data, understand how the service provider can use, aggregate, or manipulate the data, and identify its requirements for the provider to protect the security and confidentiality of the data. The business should make sure that the cloud service provider agrees to a specific schedule for performing and testing backups.

5. Insurance

Good cloud contracts should always address what insurance the parties must carry. Cloud service providers should maintain insurance for instances of data loss that cause business interruptions. End users should consider first-party insurance that will cover expenses related to data loss or breach.

6. Indemnification

Indemnification requires one party to pay for defense costs and any damages awarded when a third party makes a claim against the other party. It is critical for the parties to understand when they will be required to indemnify the other party and whether the limitations of liability will apply to an indemnification claim. It is important to ensure the contract provides indemnification for data and security breaches as well as intellectual property infringement.

7. Limitation of liability

One of the most important provisions in a cloud or software agreement is the limitation of liability that applies to either party in the event of a claim or dispute between the parties. A good limitation of liability provision will balance between the potential financial losses the customer can incur and the financial risk the provider is willing to take given the revenue the project will generate. In many instances, the parties will negotiate a relatively low limitation of liability, e.g., one year of services and then carve out some claims that are less likely but can be significantly more costly. These carve-outs include: indemnification obligations, confidentiality obligations, claims covered by insurance, and infringement claims (this is not an exclusive list).

8. Warranties

Generally, cloud service contracts contain many of the following warranties: (1) that the service will materially conform to the documentation, (2) the services will be performed in a workmanlike and professional manner, (3) the provider will provide the necessary training for the customer to use the services, (4) the services will comply with federal and state law(s), (5) the provider has sufficient authority to enter into this agreement, and (6) the parties have the authority to enter into the agreement.

9. Intellectual property

The parties can often overlook intellectual property rights when negotiating a cloud service agreement, but this oversight can be costly. In instances where the provider will develop products or implement services, the parties should clearly identify who will own any intellectual property that results from the development or implementation.

10. Implementation

When the provider will perform implementation services, the parties may choose to identify those services in a Statement of Services or Statement of Work. A good statement of work will include all the services that the provider will perform and should also include any services that will be excluded.

11. Term, Termination, & Transition Services

The term of a cloud service agreement varies but can be based on a yearly subscription. Some agreements have automatic renewal provisions. Parties should clearly identify when and if the parties can terminate for convenience, whether there are cancellation penalties, whether the provider can increase service fees on a periodic basis, and whether the provider will transfer the business’ data at the end of the relationship. If there is a transfer provision, the parties should also specify the acceptable formats for data delivery.

12. Fees

When the provider calculates service fees based on the number of users or devices, the end user should have the ability to adjust the users on a periodic basis to reflect the actual number of users or devices.

Conclusion

Whether you are a service provider or an end user, cloud agreements can help you understand your rights and your obligations. While there are many new issues when a third-party is holding sensitive data in its environment, a good services agreement can minimize misunderstandings and protect each party.

In his Petes’ Take blog for  Porzio, Bromberg & Newman,  Peter J. Gallagher describes a New Jersey case in which a court ruled that a clear arbitration provision, negotiated by a sophisticated party while represented by counsel, is enforceable.

In Columbus Circle NJ LLC v. Island Construction Co., LLC, the appellate court held that the arbitration provision in the AIA contract used in this case satisfied the requirements to explain to the signer the possible consequences of giving up the right to adjudication in a court of law, Gallagher explains.

“By its terms, the provision required plaintiff to choose between arbitration and ‘litigation in a court of competent jurisdiction,’ therefore, when plaintiff chose ‘arbitration,’ it did so ‘with full knowledge that arbitration [was] a substitute for the right to have [its] claim adjudicated in court.’ Moreover, the Appellate Division noted that neither the LLC nor its sole member was ‘an average member of the public,'” according to Gallagher.

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For the past two years, there’s been a new player in the world of employee whistleblower enforcement, writes Evan Gibbs for Above the Law.

In 2015, the Securities and Exchange Commission issued its first administrative order finding that a company violated SEC rules based on language in an employment agreement.

“In the first and only case of 2017, the SEC fined another company $340,000 because its standard severance agreement previously contained a provision in which employees waived recovery of incentive payments from the SEC,” Gibbs writes. “The company received the six-figure fine despite having removed the offending provision on its own in March 2016 as part of the company’s regular review process prior to being contacted by the SEC.third parties unless compelled to do so by law and after notice to the company.”

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A post by Liskow & Lewis on the website of JD Supra discusses a breach of contract case involving the overlay of intellectual property and contract law.

In the case, Luv n’ care, Ltd, a global leader in the design and sale of baby products, filed suit against its former distributor, Groupo Rimar, a.k.a. Suavinex, S.A., for breach of Suavinex’s contractual obligation not to copy any of Luv n’ care’s product designs.

“In defense, Suavinex asserted that the pertinent contract provisions were unenforceable illegal restraints of trade, that patent law precluded Luv n’ care from obtaining patent-like protections over unpatented products offered for public sale, and that the parties’ contract protected only confidential, proprietary designs in which Luv n’ care had a ‘protectable interest,'” according to the post.

The Fifth Circuit rejected Suavinex’s argument that patent law precluded Luv n’ care from protecting unpatented designs available in the public domain.

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Many construction lawyers who specialize in transactional work acknowledge that they do not spend much time considering or negotiating the arbitration clauses in construction contracts, points out
Patricia H. Thompson in a post on the website of JAMS.

She addresses the question: Should an arbitration clause be just a boilerplate provision, taken “off the shelf,” or should it be specifically negotiated and crafted for the particular construction project and to accommodate the parties’ requirements?

The post lists some of the major questions to consider, such as: Should arbitration be mandatory or permissive? Should there be one or three arbitrators, should they all be neutral, and should they have particular qualifications or professional expertise? Should the arbitrator’s power be broader or more limited than otherwise provided by relevant statutes or rules?

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A recent decision of the Arizona Court of Appeals provides guidance for evaluation of the enforceability of arbitration agreements in the health care field, reports Snell & Wilmer in its Health Law Checkup blog.

Andrew Sniegowski explains that Gullett v. Kindred Nursing Centers West, LLC arose out of the plaintiff’s claims that a rehabilitation center had abused and neglected his father, who lived there for the last month of his life. The plaintiff argued that the arbitration agreement was substantively and procedurally unconscionable.

The court determined that the agreement was substantively valid, but it remanded the case for further proceedings in the trial court limited to the issue of procedural unconscionability.

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A company that has always sold widgets can be expected to rely on time-tested terms of sale/purchase in its contracts. But, according to a post in the Tech & Sourcing @ Morgan Lewis blog, a company that now uses an online portal or provides other electronic access to counterparties should update those trusty standard terms.

“Have you been utilizing e-commerce to significantly improve convenience and efficiency? If an online platform were your product, rather than just a logistical tool, you would carefully craft end user terms that protect your rights and limit your liabilities associated with the platform,” write Barbara Murphy Melby and A. Benjamin Klaber.

The authors discuss the steps to take to make sure standard contract terms will more closely reflect the hybrid physical/digital nature of transactions and commercial relationships.

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Conga has posted a complimentary webinar discussing the need of an organization to gain a clear understanding of contract data to attain maximum efficiency.

“You need to access to reports and analytics to truly understand the contracts within your company and to better understand how to increase efficiencies and manage relationships,” Conga says on its website. “Analytics provides superb insight into workflow, facilitating project management and allowing you to identify which steps or contract types are creating slowdowns.”

The webinar can help users to:

• ​Target contract pain points in your organization
• Gain deep insight into contract lifecycle data
• Learn about our powerful Analytics functionality

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In his Commonsense Construction Law blog, Stan Martin asks the question “How do additional insured obligations work with subcontract flow-down clauses.” And he answers it with one word: “They don’t.”

“Unless the subcontract is carefully drafted, that is. So where the prime contract required the owner to be named as an additional insured, and the subcontract flow-down clause passed along the GC’s obligations to the owner, as the sub’s obligations to the GC, this did not by itself result in a requirement that the sub name the owner as an additional insured. That is one lesson from a New York court decision,” Martin explains.

He discusses Navigators Ins. Co. v Merchants Mut. Ins. Co. at length and concludes with two lessons to be learned.

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A blog posting by Sheppard, Mullin, Richter & Hampton discusses the varying state laws regarding sufficient consideration for non-compete agreements signed at both the outset and during employment as well as other recent attacks on non-competes and restrictive covenants generally.

“Like other contracts, non-compete and restrictive covenant agreements must be supported by adequate and sufficient consideration at the time of execution. However, what constitutes adequate consideration for a restrictive covenant, especially a non-compete provision, varies from state to state,” write Mikela Sutrina and Kevin Cloutier.

Although some states will consider continued employment at the outset of the employment relationship sufficient consideration for an at-will non-compete, some states — for example, North Carolina, Montana, South Carolina, Oregon, Texas, Washington, and Wyoming — have expressly held that continued employment is insufficient consideration to support a non-compete entered into midstream of employment, the authors explain.

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Smart contracts are digitally signed promises, which are executed automatically by software code built on blockchain technology. But what are the features of smart contracts that make them more suitable to some sectors than others?

In an article written by David E. Brennan, Jocelyn S. Paulley and Penny Ann Sanders, the English firm of Gowling WLG offers some some points to keep in mind when answering that question.

The authors write that it seems that contracts based on words cannot be totally dislodged and replaced by software code. “However, it is still important to understand blockchain technology, how smart contracts can take advantage of that technology and who can verify that the terms translated into software are the same as those written in roman characters.”

They cover the subject with headings such as smart opportunities, financial services, digital content, supply chain and trade finance, provenance, land transactions, government, machine-to-machine transactions, and challenges to going smart.

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Because there are often multiple causes of delays and a variety of types of delay damages on construction projects, it is critical that the parties consider and properly allocate the risk of such delays and the potential resulting costs in the contract documents, advises Robinson+Cole.

Elizabeth Wright explains that the Massachusetts case of Cumberland Farms, Inc. v. Tenacity Constr., Inc. offers insight into the importance of the contract in allocating the risk of delay damages.

“In this case, the court noted that the contract not only provided that the contractor is only entitled to an extension of time for delay damages but it also expressly provided that the contractor would only be entitled to time and material costs for Winter condition work,” she writes.

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A recent ruling in a New Jersey federal count stated that a contractual term, like an arbitration clause, is binding only when the terms are reasonably conspicuous, rather than in a manner that de-emphasizes its provisions.

Writing in Carlton Fields’ Reinsurance Focus, shareholder Jeanne Kohler described the case involving a Samsung smart watch. The suit accused the company of deceptive marketing and pricing. Samsung moved to compel arbitration, based on an arbitration provision on page 97 of a 143-page “Health and Safety and Warranty Guide” in the watch box.

The appellate court wrote that the clause “did not appear to be a bilateral contract, and the terms were buried in a manner that gave no hint to a consumer that an arbitration provision was within.”

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Pat Collins of Norris McLaughlin & Marcus discusses a recent decision by a New Jersey appellate court that highlights the well-established legal maxim that “when a party enters into a signed, written contract, that party is presumed to understand and assent to its terms.”

Writing in the firm’s employment law blog, Collins covers the case of ADP v. Lynch and Halpin. ADP sued two former employees who had resigned and went to work for one of ADP’s competitors.

ADP claimed they had violated terms of an agreement on a web page outlining incentive stock awards in exchange for the non-compete. Defendants argued that the clause covering the non-compete was merely an online check box that signified that they had read the agreement. It did not say they agreed to the terms, they argued.

The trial court and appeals court found otherwise.

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When a contractor on a project files a bankruptcy case, the property owner and subcontractors have some serious decisions to make, writes   Tracy Green in the California Construction Law Blog.

The blog is a publication of Wendel Rosen Black & Dean LLP.

When a party to a contract files bankruptcy, the other party’s actions are constrained by the bankruptcy code, Green explains.

The article covers the types of bankruptcies involved, benefits of bankruptcy for the debtor, benefits of bankruptcy for the creditor, executory contracts, liens and bonds, getting the work done, preferences, and doing business with a distressed contractor.

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A recent ruling by a U.S. district court’s in New York is another example of a court using public policy reasons to override voluntarily entered into contractual choice-of-law provisions, according to an article published by Paul Hastings LLP.

The court ruled in the remand of Madden v. Midland Funding, LLC that New York’s fundamental public policy against usury overrode a credit card agreement’s Delaware choice-of-law provision, write Thomas P. Brown, Lawrence D. Kaplan, Gerald S. Sachs, Amanda M. Kowalski and Laura E. Bain.

“Madden is the latest decision to look past the contractual agreement of the parties to apply state usury and other consumer protection requirements to consumer credit and collections activity. Various courts have taken up some version of the issues presented in Madden, but none have held that bank originated loans sold are subject to interest rate determinations based on the location of collection (as opposed to the location of origination),” according to the article.

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Whether a mixed insurance contract (i.e., an insurance contract with maritime and non-maritime elements) permits the exercise of admiralty jurisdiction is a complicated question for parties and for the courts, writes Eric Chang in an alert for Montgomery McCracken Walker & Rhoads LLP.

He writes that admiralty jurisdiction can be the basis for subject matter jurisdiction for the federal courts.

“Historically, admiralty jurisdiction was limited to contracts that were purely maritime – involving rights and duties pertaining to ships, vessels, and the navigation thereof on the ocean or elsewhere,” he explains.

That changed, however, when the U.S. Supreme Court exercised admiralty jurisdiction in a “maritime case about a train wreck.”

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