Friday, October 31, 2014

Contract Survivalists: When Is the Contract Over?

Here's a tip to survive Halloween. Check out more PD Halloween postcards.
Dear Rich: We were asked to sign a work for hire agreement to modify a website. The contract was for a year, but there was language in it that seemed to contradict the one-year thing. The language said that three provisions in the agreement survived termination and could be enforced after the contract was over. This doesn't make sense. If the contract is over, how can the company still have any rights over me? Right, you would think that once the contract is done, it's done! But just because an agreement terminates doesn’t mean that all of the obligations in the agreement terminate. For example, the parties may want to continue their obligations to maintain confidential information after the agreement ends. Or, additional payments may accrue after termination. To handle situations like this, the parties often state that certain obligations will continue or survive the termination of the agreement. Typically, those provisions include confidentiality, warranties, indemnity, and payment obligations. You can spot them because they usually start with, “This obligation shall survive any termination of this agreement.”
Are they really enforceable? Courts may not always enforce survival clauses. In general courts prefer fixed (not open-ended) periods of survival as well as a clear indication that any claims regarding the provision will be brought prior to the end of the surviving clause.