What is Indemnification?(shouldisign.com)
shouldisign.com
What is Indemnification?
https://www.shouldisign.com/what-is-indemnification/
35 comments
Similarly IANAL, have owned, operated, and sold a smallish software business. I agree 100% with the above advice, but would like to highlight and amplify the previous comment's last sentence, 'cause that's the hinge:
Make sure your business's corporate paperwork is in order so the "corporate veil" cannot be "pierced" and continue on with life.
Don't sign any contract with an indemnity clause if you're not structured so that the corporation takes the risk.
Make sure your business's corporate paperwork is in order so the "corporate veil" cannot be "pierced" and continue on with life.
Don't sign any contract with an indemnity clause if you're not structured so that the corporation takes the risk.
Yup.
GlobeCorp is trying to transfer risk to startup.com. So they push these types of clauses. The reality is that startup.com can't manage that level of risk if it actually materialized (they'd fold)... so GlobeCorp really hasn't managed their risk at all.
GlobeCorp is trying to transfer risk to startup.com. So they push these types of clauses. The reality is that startup.com can't manage that level of risk if it actually materialized (they'd fold)... so GlobeCorp really hasn't managed their risk at all.
What risk?
If it's litigation risk pushing it onto startup.com now gets GloboCorp off the hook. startup.com goes out of busiiness, GloboCorp is fine.
If it's risk of simple failure then maybe.
If it's litigation risk pushing it onto startup.com now gets GloboCorp off the hook. startup.com goes out of busiiness, GloboCorp is fine.
If it's risk of simple failure then maybe.
>If it's litigation risk pushing it onto startup.com now gets GloboCorp off the hook.
That's not how indemnity works. If Apple sells a Macbook with a flawed battery that explodes in consumers' laps, the plaintiffs will sue _Apple_ and not the outsourced Chinese battery factory. Just because the Chinese company agrees to an indemnity clause, it doesn't prevent lawyers for the plaintiffs to name Apple as the defendant on the lawsuit.
Indemnity is about monetary compensation from the other party and not some type of shield against lawsuits. That means that Chinese company compensates Apple's cost of lawyers and losses to pay judgments and settlements. To grandparent poster's point, if Chinese battery company goes out of business, the indemnity clause means nothing since Apple was unable to receive reimbursement from that manufacturer.
That's not how indemnity works. If Apple sells a Macbook with a flawed battery that explodes in consumers' laps, the plaintiffs will sue _Apple_ and not the outsourced Chinese battery factory. Just because the Chinese company agrees to an indemnity clause, it doesn't prevent lawyers for the plaintiffs to name Apple as the defendant on the lawsuit.
Indemnity is about monetary compensation from the other party and not some type of shield against lawsuits. That means that Chinese company compensates Apple's cost of lawyers and losses to pay judgments and settlements. To grandparent poster's point, if Chinese battery company goes out of business, the indemnity clause means nothing since Apple was unable to receive reimbursement from that manufacturer.
I've never really looked for these, or thought about them explicitly, in my contracts. They feel very standard and I feel like I may have overlooked the implications for these in the past.
I have refused to sign contracts with non-competes several times in my life. Most companies either remove it or say, "No there's not a not compete. Oh .. huh .. well I'll remove it." I've had two companies fight me over these and I came close to walking away from both, but we ended up being able to work things out.
Most realize they're not enforceable in most states and I've even seen contracts that specify "except in California" since there are laws restricting non-competes there.
I have refused to sign contracts with non-competes several times in my life. Most companies either remove it or say, "No there's not a not compete. Oh .. huh .. well I'll remove it." I've had two companies fight me over these and I came close to walking away from both, but we ended up being able to work things out.
Most realize they're not enforceable in most states and I've even seen contracts that specify "except in California" since there are laws restricting non-competes there.
How did you work things out? They caved or some compromise? If it was a compromise do you remember what it entailed?
You can always ask for money. If someone asks for a 6 month non-compete, ask for an X month parachute (where X depends on how narrow the field is and how likely it is for you to find a job in a different field). You might have to negotiate something wrt being terminated with cause, or if you terminate the contract.
That can end up being a bit complicated, though. My standard is to only agree to non-competes that trigger when my service ends up being more than 12 months (I have no special skills that would hurt anybody in a specific industry in such a short time). Then I ask for a 3-4% increase in salary, depending on what industry they want me to stay out of. Basically this is my insurance money and reflects my ability to get a job in a different industry.
If the non-compete were for programming in general, it would cost them up to 50% of my salary. A non-compete when I'm on contract will likely cost up to 100% of my normal fee, depending on the duration of the contract. TBH, unless they are already paying through the nose for exclusive access to specialised skills, I've never heard of contract work having a non-compete clause.
Another thing you can/should do is make sure that any exercising/vesting of options/stock carry over into the non-compete period.
Personally, I love non-competes. I use the time for writing free software.
That can end up being a bit complicated, though. My standard is to only agree to non-competes that trigger when my service ends up being more than 12 months (I have no special skills that would hurt anybody in a specific industry in such a short time). Then I ask for a 3-4% increase in salary, depending on what industry they want me to stay out of. Basically this is my insurance money and reflects my ability to get a job in a different industry.
If the non-compete were for programming in general, it would cost them up to 50% of my salary. A non-compete when I'm on contract will likely cost up to 100% of my normal fee, depending on the duration of the contract. TBH, unless they are already paying through the nose for exclusive access to specialised skills, I've never heard of contract work having a non-compete clause.
Another thing you can/should do is make sure that any exercising/vesting of options/stock carry over into the non-compete period.
Personally, I love non-competes. I use the time for writing free software.
In reality it does nothing if the party that's going to indemnify you does not have funds to do so. You are much better getting insurance if you really think there is a risk of something like this happening to you. There is a much greater level of protection than a mere clause in a contract. As a contractor, you should never agree to such a clause unless you are a big company capable of covering such a clause. If you a contractor put in such a position, go get insurance and make the company putting in the clause pay for it. That's the cost of doing business with them.
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What's involved in getting this type of insurance? Do you just fork over some cash to the insurer or is there a vetting process?
The insurance company usually looks at the contract to decide. They don't care that much though. It's really a question about how much coverage you need in terms of price. And it's not that expensive. A few hundred bucks will buy you multi-million dollar protection.
Thanks.
Completely unrelated to the article: Why do sites (like this one) increasingly do some hacky javascript-based non-native-scrolling that makes the UX shit? Is this just because I'm on desktop and it's actually well-suited for mobile or something? Or is it just designer-bloat so sites can demonstrate what a special snowflake they are? Or is there some utility I'm missing/am I just being oversensitive?
I think it's the inner-platform effect [1] in action. Now that the flexibility to do so exists, a lot of modern websites seem to be incrementally recreating the web browser inside the web browser.
[1] http://thedailywtf.com/articles/The_Inner-Platform_Effect
[1] http://thedailywtf.com/articles/The_Inner-Platform_Effect
You are being a bit over-sensitive probably due to overexposure of this type of stuff, but in the case of the site, it's likely it was just part of a package. I'm thinking you're referring to jQueryUI that is loaded up, and it looks like it's a "nuke for an anthill" situation, where there's likely something in the set of scripts that works for them.
It's annoying, but it's probably nothing to get worked up over - they saw something they needed and went for it.
It's annoying, but it's probably nothing to get worked up over - they saw something they needed and went for it.
This was my first thought on this site too, on Chrome on macOS - I closed the website in frustration, it made the reading experience awful.
Two general rules I follow:
1. You want me to indemnify you? Hahahahahaha. No.
2. You want to indemnify me? Sure, sounds good.
1. You want me to indemnify you? Hahahahahaha. No.
2. You want to indemnify me? Sure, sounds good.
> Hahahahahaha. No.
Then you probably get few contracts. Every contract is full of so much garbage that you could argue over that if you actually did so, then:
- you'd frustrate the other party and eventually they'd hire someone else, or stop working with you in the future
- you'd spend large amounts of your own time, or worse, money for a lawyer
- you drain your own psychic energy on that instead of doing programming or whatever is it that you do
Then you probably get few contracts. Every contract is full of so much garbage that you could argue over that if you actually did so, then:
- you'd frustrate the other party and eventually they'd hire someone else, or stop working with you in the future
- you'd spend large amounts of your own time, or worse, money for a lawyer
- you drain your own psychic energy on that instead of doing programming or whatever is it that you do
An important takeaway not specifically stated here: Don't rely on layman knowhow and common sense when negotiating contracts. Lots of people, myself included, assume we can understand things outside of our areas of expertise easily because we are experts in one field or another. Such an assumption of unqualified competence is wrong and can be dangerous.
Get a lawyer, have the lawyer review anything you might be planning to sign. Going into a contract negotiation of any kind without an attorney is like bringing a plastic spork to a gunfight and shouting "Careful, I've got a knife!"
Get a lawyer, have the lawyer review anything you might be planning to sign. Going into a contract negotiation of any kind without an attorney is like bringing a plastic spork to a gunfight and shouting "Careful, I've got a knife!"
I took a picture of a sculpture of 4 men staring down at the Louvre. It's on my flickr marked CCBY. Some magazine in the UK wanted to use it for free and they wanted me to sign an indemnification clause. I have no idea what the legal ramifications or licensing issues there with pictures of things in the Louvre so no, I wasn't about to sign. Certainly not for $0
Separately I thought one point of CCBY to me was NOT having to have them contact me to use the images I post.
It did cross my mind that it might have been a scam. Get me to sign, claim breach, take my money. (probably not but it did cross my mind)
Separately I thought one point of CCBY to me was NOT having to have them contact me to use the images I post.
It did cross my mind that it might have been a scam. Get me to sign, claim breach, take my money. (probably not but it did cross my mind)
I was once asked to sign a software development contract that would have made me "responsible for estimated loss of profits". I quoted that part of the contract and wrote back:
"Nice try but yeah, no. :-)"
We worked something out and now they are a great client. Lawyers/companies will put all kinds of crazy stuff in their "standard contract". I had my own lawyer go over it and find all the other booby traps.
We worked something out and now they are a great client. Lawyers/companies will put all kinds of crazy stuff in their "standard contract". I had my own lawyer go over it and find all the other booby traps.
You had better luck than I once had with something similar...
We had this system that we developed and was used by several companies... They all had to sign the License Agreement. It contained pretty much common stuff, and we never had any problem with other companies and local governments signing it. But then one day, a potential client asked us to remove the paragraph were we stated that given the nature of the work, we could not garantee the absolute absence of errores. Of couse in another section we clarified that we would provide support. Their lawyer wanted us to change that and garantee that there would be absolutley no errors,and given that case, we would have to indemnify them besides giving support.
Funny thing is that the agreement specified that they could not resell unauthorized copies, or redistribute to others, etc, otherwise if we found out, we would sue and they would have to indeminfy us. Of course the same lawyer wanted to remove that.
Several drafts were exchanged until it was absolutely clear that they didn't understand the difference between software engineering and civil engineering. And between owning a thing and owning a license to use a thing.
Our legal team just told us to drop that sell...
We had this system that we developed and was used by several companies... They all had to sign the License Agreement. It contained pretty much common stuff, and we never had any problem with other companies and local governments signing it. But then one day, a potential client asked us to remove the paragraph were we stated that given the nature of the work, we could not garantee the absolute absence of errores. Of couse in another section we clarified that we would provide support. Their lawyer wanted us to change that and garantee that there would be absolutley no errors,and given that case, we would have to indemnify them besides giving support.
Funny thing is that the agreement specified that they could not resell unauthorized copies, or redistribute to others, etc, otherwise if we found out, we would sue and they would have to indeminfy us. Of course the same lawyer wanted to remove that.
Several drafts were exchanged until it was absolutely clear that they didn't understand the difference between software engineering and civil engineering. And between owning a thing and owning a license to use a thing.
Our legal team just told us to drop that sell...
>I was once asked to sign a software development contract that would have made me "responsible for estimated loss of profits".
I usually walk away completely at that point. Something like this is a red flag that you're dealing either with shysters or people who don't read what their lawyers give them. Both imply you're going to have a bad time.
I usually walk away completely at that point. Something like this is a red flag that you're dealing either with shysters or people who don't read what their lawyers give them. Both imply you're going to have a bad time.
If a person was asking for the crazy things I see in contracts, yes, I'd agree with you since it shows intent.
If you treat companies like that, you miss out on opportunities since the crazy stuff in the contract is negotiable and the guy you're negotiating with didn't write the contract and won't mind you crossing out the bad parts that keep both of you from a mutually beneficial deal.
Companies are made of various factions who's goals may only be loosely aligned with the company's goals.
The lawyer drafting the contract is trying to protect the company. If you weren't rewarded for making the company lots of money, only punished if the company gets sued, how would you write a contract?
If you treat companies like that, you miss out on opportunities since the crazy stuff in the contract is negotiable and the guy you're negotiating with didn't write the contract and won't mind you crossing out the bad parts that keep both of you from a mutually beneficial deal.
Companies are made of various factions who's goals may only be loosely aligned with the company's goals.
The lawyer drafting the contract is trying to protect the company. If you weren't rewarded for making the company lots of money, only punished if the company gets sued, how would you write a contract?
>If a person was asking for the crazy things I see in contracts, yes, I'd agree with you since it shows intent.
Usually somebody did. And, if the person who hands you the contract acts surprised about its contents that isn't good either. It demonstrates a dangerous lack of control.
>If you treat companies like that, you miss out on opportunities since the crazy stuff in the contract is negotiable and the guy you're negotiating with didn't write the contract and won't mind you crossing out the bad parts that keep both of you from a mutually beneficial deal.
This is exactly what I used to think when I encountered a guy who apparently hadn't read his contract, acted surprised about its contents and he was happy to change it.
He later ended up not paying me as he ran out of money without noticing. Apparently he not only neglected to read his contracts, he neglected to read his bank statements.
So far he's the only person who acted surprised about the contents of his contract.
>The lawyer drafting the contract is trying to protect the company.
Egregious fuck-you clauses can actually hurt the company's standing in court since a judge may decide the rest of the contract shouldn't be enforceable (at least under UK law).
Either way, unless the client is exceptional in all other respects or you really need them it's usually worth walking away.
Usually somebody did. And, if the person who hands you the contract acts surprised about its contents that isn't good either. It demonstrates a dangerous lack of control.
>If you treat companies like that, you miss out on opportunities since the crazy stuff in the contract is negotiable and the guy you're negotiating with didn't write the contract and won't mind you crossing out the bad parts that keep both of you from a mutually beneficial deal.
This is exactly what I used to think when I encountered a guy who apparently hadn't read his contract, acted surprised about its contents and he was happy to change it.
He later ended up not paying me as he ran out of money without noticing. Apparently he not only neglected to read his contracts, he neglected to read his bank statements.
So far he's the only person who acted surprised about the contents of his contract.
>The lawyer drafting the contract is trying to protect the company.
Egregious fuck-you clauses can actually hurt the company's standing in court since a judge may decide the rest of the contract shouldn't be enforceable (at least under UK law).
Either way, unless the client is exceptional in all other respects or you really need them it's usually worth walking away.
I'm not sure I agree with you (at least not yet) but I upvoted you for sharing your experience/data points. My own view/thoughts on this is are shaped by an extremely small sample set so I could be wrong.
I hate to burst your bubble but most people don't read what lawyers put in front of them, especially if it's their own lawyer.
I couldn't come to employment terms with a start-up because they were unwilling to indemnify. Turns out executives were covered, employees weren't.
Their stance was part of early employee risk of joining a start-up is not being indemnified; that risk was part of their culture at their current stage.
Their stance was part of early employee risk of joining a start-up is not being indemnified; that risk was part of their culture at their current stage.
I once refused to sign a contract that had me indemnify the employer for losses in the event that they terminated me. They wanted to be able to terminate me without cause and then recover damages that they incurred as a result of doing so. This was a big company too. Luckily the HR person didn't understand the word "indemnify" and so agreed to strike the clause. Afterwards the legal department tried to force me to sign a new contract, implying that I would no longer have a job if I didn't sign. I sent them an email saying, "Wanting me to sign a new contract does not seem to be one of the reasons for termination on my existing contract. Are you saying that you will fire me unless I agree to a new contract?" Contracts signed under duress were not legally binding in the country where I was working. They did not reply and I kept a healthy distance from the legal department for the time I worked there.
Contracts are annoying. Next time I look for work, I'm seriously considering just hiring a lawyer to handle all the negotiations for me. One of the reasons I agreed to work at my existing job is that the contract had virtually nothing on it. I'm working on contract with them now, not full time, and they asked me to draw up the contract. I really like working with people like that.
Contracts are annoying. Next time I look for work, I'm seriously considering just hiring a lawyer to handle all the negotiations for me. One of the reasons I agreed to work at my existing job is that the contract had virtually nothing on it. I'm working on contract with them now, not full time, and they asked me to draw up the contract. I really like working with people like that.
Could anyone elaborate on more examples of the indemnification clause in use? The IP example was useful, but I'm still not sure if I understand it generally.
Say I rent a crane from you. In the course of renting the crane to put new air conditioning units on the top of my building, there is an accident and the crane causes damage to a nearby building.
If the owner of the damaged building sues you, the renter, to recover money to repair the building, the indemnification clause(s) in the crane rental agreement would state something along the lines that I, the renter of the crane, would cover any costs from the lawsuit and "hold you harmless".
If the owner of the damaged building sues you, the renter, to recover money to repair the building, the indemnification clause(s) in the crane rental agreement would state something along the lines that I, the renter of the crane, would cover any costs from the lawsuit and "hold you harmless".
That was helpful, thanks!
- your lawyer will zero in on them like a fly to poop
- you could easily spend thousands on lawyers playing indemnification clause ping-pong; provide guidance that you only care about "egregious" clauses
- the larger/more powerful party will always get the indemnification clause they want
- if a claim is ever made against you, you might be going out of business; that's life
- get business insurance and spend your time worrying about other things
This is not to say indemnification clauses are not legally important. They are! But there's almost nothing that plucky little startup.com can do about GlobeCorp's GC's office devotion to their indemnification clause. It's part of the risk of running a business. Make sure your business's corporate paperwork is in order so the "corporate veil" cannot be "pierced" and continue on with life.