As a small business owner in California, you’re likely juggling numerous responsibilities and making important decisions daily. One critical area that deserves your attention is contract management.
While it may be tempting to quickly sign agreements to keep your business moving forward, having an attorney review your contracts before signing can provide significant benefits and help you avoid potential pitfalls.
Benefits of Attorney Review:
- Legal Compliance: California has unique laws and regulations that affect businesses. An attorney can ensure your contracts comply with state-specific requirements – such as those related to employment, consumer protection, and industry-specific regulations. Due diligence generally means that corporate officers must use reasonable efforts to evaluate the risks and benefits of their business transactions and contracts.
- Risk, costs and benefits: Lawyers are trained to spot potential issues that may not be immediately apparent to non-legal professionals. They can identify clauses that could expose your business to unnecessary risk or liability. Our lawyers have training and experience to advise you on the possible risks of each contract as well as the potential advantages. Key items to review will be the choice of law (which state law will govern any disputes), Alternative Dispute Resolution (Arbitration requirements, pre-lawsuit efforts to attend a mediation in good faith) attorneys fee and cost allocation. For example, California Civil Code § 1717 allows parties to a contract to require the losing party to a contract to pay the reasonable attorney’s fees and costs of the prevailing party. But the default “American Rule” is that each party must bear its own attorney’s fees and costs unless they are built into the contract.
- Negotiation Strategy: An attorney can suggest modifications to contract terms that better protect your interests. They can also provide guidance on which points are negotiable, or objectionable and which are standard practice in your industry.
- Clarity and Precision: Legal language can be complex. An attorney can explain unclear terms and ensure that the contract accurately reflects your understanding and intentions. We like to provide an executive summary to our clients so that they can clearly and quickly key into specific areas of concern.
- Future Protection: Well-drafted contracts can help prevent disputes down the line. If conflicts do arise, a carefully reviewed contract can provide stronger legal protection for your business.
- It’s More Cost-Effective in the Long Run: While there is an upfront cost for legal review, it’s often far less expensive than dealing with the consequences of a problematic contract later.
Potential Downsides of Signing Without Review:
- Unfavorable Terms: You might inadvertently agree to terms that put your business at a disadvantage or expose you to unnecessary liability.
- Hidden Clauses: Contracts may contain clauses with significant implications that are easy to overlook without legal expertise, such as automatic renewal terms or broad indemnification provisions.
- Noncompliance Risks: Failing to comply with California-specific laws could result in fines, penalties, or legal action against your business.
- Dispute Resolution Challenges: Without proper review, you might agree to unfavorable dispute resolution terms, such as mandatory arbitration or out-of-state venues for legal proceedings.
- Missed Opportunities: An attorney might identify opportunities to negotiate better terms that you wouldn’t have recognized on your own.
- Unintended Consequences: Some contract provisions may have far-reaching effects on your business operations that aren’t immediately obvious.
California-Specific Considerations:
Non-Compete Agreements (NCA): California generally prohibits non-compete agreements (Cal. Bus. & Prof. Code 16600) with some exceptions — such as when a departing owner sells for value and reasonable geographic and time limitations are built into the agreement. These types of agreements almost always require a closer look.
Other examples include contracts that violate public policy: e.g.,
- Agreements that unfairly restrict an employee’s right to work.
- Usurious loans: California has strict usury laws limiting interest rates on certain types of loans
- Contracts that violate specific statutes: Such as agreements that contravene landlord-tenant laws or consumer protection regulations
Employment Contracts: California has unique employment laws, including those related to overtime, meal breaks, and employee classification. An attorney can ensure your employment contracts align with these requirements.
While it may seem like an added expense, having an attorney review your contracts before signing is a smart investment in your business’s future. It can save you time, money, and stress in the long run by helping you avoid legal pitfalls and ensuring your agreements truly serve your business interests. In California’s complex legal landscape, this professional guidance is particularly valuable for small business owners looking to protect and grow their enterprises.
Always keep abreast of the latest legal requirements and consider consulting with Gallagher Krich’s experienced California business lawyers to address any company-specific concerns. For more information, contact Gallagher Krich, APC at (858) 926-5797 or info [at] tomgallagherlaw.com
Attorney-Advertising. Tom Gallagher, is the attorney responsible for this advertising.
Thomas F. Gallagher, Esq. is a founding partner of Gallagher Krich, APC, a San Diego law firm focused on business law, civil litigation, and contract disputes. With over 30 years of legal experience, Tom provides strategic counsel to business owners, entrepreneurs, and professionals navigating complex legal challenges across California.
His practice includes drafting and negotiating commercial contracts, resolving business disputes, and advising clients on corporate governance, regulatory compliance, and risk management. Read more »
