Contracts, In-House Counsel

Moonlighting: ‘Til Death (or Upon the Occurrence of Certain Termination Events) Do Us Part

Business relationships are kind of like marriages. And unfortunately, like some marriages, one or more parties figure out that the benefits of the relationship don’t outweigh the negatives, and decide to part ways. How can you handle it efficiently?

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Business relationships are kind of like marriages. In the beginning, everyone’s excited, and life is fresh and full of promise. “Things are really going to change around here,” you think. You know that you’re going to need to make some adjustments, some compromises, but it’s all going to be worth it. You ignore small warning signs, such as the fact that your partner sometimes seems to spend a lot on discretionary items. (But at least he only bought nine pairs of Prada shoes during the trip to Italy instead of the 23 he really wanted.)

Then, as you settle into a routine, you may find that, well… things aren’t exactly as you had expected. There are minor annoyances — things that make working together take more time, communication, and effort than you had thought.

And unfortunately, like some marriages, one or more parties figure out that the benefits of the relationship don’t outweigh the negatives, and decide to part ways. You decide that 18,000 pairs of designer shoes is definitely an indication of a problem. Sometimes, the decision to separate is fairly mutual. Other times, one partner is desperately clawing out from under a pile of fancy footwear that the other only continues to build up.

Also like many marriages, at the start of the business relationship, nobody wants to think about how it will end. Ninety-nine percent of engaged couples won’t touch a prenuptial agreement with a ten-foot pole because they absolutely KNOW that they’re truly in love, and no way are they in the group of the more than 50% of married couples who will part before death.

Similarly, nobody likes to think about the business “prenup” (i.e., the termination/transition provisions in a contract) for more than a few microseconds. For example, there’s the uber-lazy version of a catchall survival provision that makes it into some contracts. It basically says as follows: “Everything in this agreement that’s intended to survive termination will survive”….

Er… okay. So… how exactly are we supposed know what was intended to survive? Well duh, obviously the intent is that we track down the original drafters and check with them: “Hey, so did you, like, intend for the confidentiality provisions to survive? Oh, you did? Okay, so then, for how long were you thinking they would survive, since, you know, it doesn’t say anything in there about the length of time or anything? And by the way, I should let you know that the other guy said three years, so I just wanted to check that you had the same intent as he did on that… oh… what, you thought five? Crap…”

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Thankfully, survival and termination is usually dealt with a bit more extensively, if in fairly boilerplate fashion, in most contracts. But even many of these could probably benefit from some further consideration, for example, about additional circumstances that would merit a termination right.

A related concept that’s also often neglected during the “go-go” beginning period is transition. The main questions here are: what needs to happen operationally to effect a smooth transition off the relationship, and what will help minimize business interruption after termination? Termination of a business relationship itself is disruption. Having to deal with operational fire drills as a result (like having to figure out at the last minute who’s going to pay for hauling six rooms’ worth of shoes from the house) just adds to a downer situation. Scrambling to get all your six year’s worth of information back in a readable format from an stubborn ex-vendor is all kinds of bad.

For simpler contracts, transitioning may just involve ending a stream of payment, shutting off links to websites, etc., which are relatively painless. For more complicated relationships, consider whether you should include more extensive transition provisions. Have your business teams consider what needs happen at transition. For example, if your company is receiving full services from a vendor, how much time would you need to phase out the services while you locate and negotiate a contract with another service provider? Would you want to be able to require the first vendor work with the successor vendor during the transition? If you’re the one providing services, what kind of impact will a sudden halt have on your operations and on your work force?

Finally, consider the impact of any exclusivity provisions on the transition process. If you wanted to transition the contract over to another provider, is there a carveout that would let you negotiate with a third party some time before termination?

Are prenups good for wedded couples? It does kind of seem like 99% of us are sticking our heads in the sand; the numbers just don’t add up, I mean not even close. Business relationships also often start out rosy, and the people involved happily ignore the fact that the end is often messy with lots of hard feelings and indiscriminate finger-pointing. Spending some time to consider termination and transition provisions a little more thoroughly can help to make parting more sweet and less sorrowful. For those of you who don’t do so, I wouldn’t want to be in your Prada shoes.

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Susan Moon is an in-house attorney at a travel and hospitality company. Her opinions are her own and not those of her company. Also, the experiences Susan shares may include others’ experiences (many in-house friends insist on offering ideas for the blog). You can reach her at SusanMoonATL@gmail.com and follow her on Twitter at @SusanMoon.

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