Essential Clauses of a Client Agreement
Though we’re going to go over some of the key elements of a client agreement, it’s critical that you understand that every business is unique. What you need to put in your contracts depends on your business, your clients, the mutual objectives and expectations of the parties, the types of risks involved, and what you are (and aren’t) allowed to do under applicable federal and state laws. Simply put, these contracts should always be tailored to suit the particular transaction and the circumstances of your business.
That being said, there are a number of key clauses that need to be present in every client agreement – clauses that I include in the contracts I draft for my clients with service-based businesses. Although I’m not giving specific legal advice custom-tailored to anyone’s particular business or circumstances without a retainer, this overview of the fundamentals should help most of you at least get a basic understanding of what actually goes into a client contract:
Scope of Services
Considering that one of the main purposes of the Client Agreement is to ensure that both parties are on the same page with respect to the work being performed, the Scope of Services (or “Scope of Work”) Clause is arguably the most important clause of your client contract. This clause, if worded well, helps get both parties on the same page by providing a DETAILED description of what services you provide for the compensation being paid. The length of your project description will depend on the complexity of the work, but clarity in this clause is non-negotiable.
Being the clause that essentially defines what you will and will not do, make sure that the description it provides is extremely specific, clearly worded, and accurately reflects what you and your client agreed upon. You should always define the scope of work as clearly and specifically as possible, so that the client understands exactly what work you are (and are not) delivering. (If you’re feeling uninspired, pretending that you’re describing what you’re going to do to a twelve-year-old is a good start.)
Most disputes between a client and service provider emanate from misunderstandings and mismatched expectations resulting from a less than clear client agreement. The good news is, these disputes are easily avoidable if the scope of services are clearly set out in a contract signed by both parties before the work begins.
Increasing/Modifying Scope of Services
This paragraph works together with the Scope of Services clause to clarify how requests for services outside the contract will be handled, and how such additional services will be billed. You want to avoid what’s commonly known as “scope creep,” a.k.a. “kitchen sink syndrome,” a.k.a. the perpetual barrage of requests from clients that often result in an uncontrolled increase in the scope of your project after it begins. You can say that requests outside the agreed scope of services will be billed at a certain hourly rate, or you may provide that additional requests will require the execution of a new/additional contract.
Expenses Paid by Client
If there are any expenses associated with the work that the client has to pay, usually directly to the vendor, without necessarily involving you in the process, list them here. Ex: hosting and buying the domain name if they want the funnels hosted on their own domain; licensing fees for any pictures they want on their landing pages, etc.
This clause should list any categories of costs or expenses that will initially be paid by you out of pocket, but which will have to be reimbursed by the client.
Let us be real – the whole point of doing work for a client is to get paid. If we can’t buy food and a roof over our heads, we wouldn’t be able to help anyone. It is therefore extremely important that your client agreement contains a clear and detailed clause defining the amount of payment due, when payments are to be made, the accepted forms of payment, where payments must be remitted, and what happens in the event of missed or delayed payments.
Return and Refund Policies
One of the most frequently cited source of entrepreneurial misery is demands for returns and/or refunds by clients. Don’t let a request for a refund be the first time you think about how refunds are going to be handled. Dealing with a dissatisfied customer is stressful enough – not knowing what to do and scrambling to figure it out when it’s already a point of contention is a nightmare. Set out a clear return and refund policy in the contract, defining under what circumstances you will grant refunds (if at all); how much of the purchase price or fees paid you will refund; how long the client has to request a refund for such request to be honored; and any other criteria you want to establish. It’s your party and you do what you want to (provided it’s legal). If you have a well-drafted returns and refunds provision, any time a client demand a refund, you can simply point them to the appropriate clause and carry on with your business.
This clause allocates the parties’ financial responsibility for possible future losses in connection with the work. The indemnifying party (“indemnitor”) essentially undertakes to compensate, reimburse, or protect the other party (“indemnitee”) against possible losses arising out of the subject of the contract. This obligation may be unilateral, meaning that only one party agrees to indemnify the other; or mutual, in which both parties agree to indemnify the other against anticipated losses, damages or liabilities.
Late Payment(s) or Failure to Pay
This clause defines what happens if the client is late with payment or fails to pay altogether. How long before you terminate the contract? Are there any other consequences of nonpayment? (For example, if it’s a web design or marketing contract, are you going to take their stuff down? Are you going to stop working on their project, but leave the pages up?) How long before you take legal action?
The Intellectual Property Clause is an important provision that defines exactly what rights you are (and are not) giving the client with respect to any intellectual property you create.
Ownership of Social Media Contacts
This clause specifies who owns the contacts acquired as a result of your work in managing social media accounts, writing blog posts, or otherwise engaging with the public on behalf of your client. (Hint: it’s usually the client.)
Alternative Dispute Resolution
This clause lays down the rules with respect to resolving disputes via arbitration or mediation.
Choice of Law
This clause specifies which state’s law governs the contract. This is normally the state where you reside, but can also be the state whose laws are most familiar and/or most favorable to the parties.
Choice of Forum
While the Choice of Law Clause determines which state’s laws apply, the Forum Selection Clause establishes which state’s courts can resolve the dispute (and therefore where the parties can file suit). It is possible (though rarely advisable) to designate one state as the forum and a different state as the one whose laws apply.
Warranty Disclaimer Clause
In this clause, the parties essentially state that they are not offering any warranties, except as required under law. To “warrant” something means to promise that a fact is or will be true and further, that if it turns out to be untrue, you’re willing to compensate the client for any the financial consequences incurred as a result. “Disclaimer” means that you are NOT doing any of that.
Limitation of Liability Clause
While Warranty Disclaimer Clauses serve to release you from some liabilities (meaning that you’re entirely off the hook), a Limitation of Liability clause usually doesn’t completely RELEASE you from certain liabilities, but instead LIMITS your liability for certain losses to a specific amount, capping your financial responsibility at a predetermined maximum.
This clause governs the parties’ obligation to protect each other’s trade secrets and confidential information that they don’t want disclosed to their competitors.
Unauthorized Disclosure of Confidential Information
This clause governs what happens in the event that a party violates the Confidentiality Clause and discloses the other party’s confidential information.
This clause specifies a) what forms of notices are acceptable; b) how notices need to be made/delivered; c) where notices must be sent; and d) when notices are deemed delivered. (If you communicate via e-mail, you don’t want a notices clause stating that notices can only be provided via snail mail to be effective, so pay attention).
The general rule in most states is that, should the parties end up in court, everyone has to pay their own attorney fees, whether they win or lose the case. If you and your client want to agree to have the losing party pay the prevailing party’s attorney fees, it should be stated specifically in the contract.
Termination of Agreement
Having a clause that clearly defines how the parties may terminate their agreement. Many contracts allow either side to terminate the agreement for any reason or no reason at all, as long as the other party receives adequate notice, while some contracts allow termination only for good cause, such as nonpayment, insolvency, or some material breach of the agreement. Decide on your termination policy beforehand and include it in all client agreements in order to prevent any future decision to terminate a business relationship from devolving into a legal dispute.
Other standard clauses
These include Severability (if one clause is unenforceable, the rest of the contract still stands); Entire Agreement (the contract constitutes the entire agreement between the parties and supersedes all other writings and agreements); Force Majeure (the parties are excused or given additional time to meet their obligations in the event of some uncontrollable situation such as war, meteor strike, hurricane, or other interruption that makes performance impossible); Insurance (some contracts require one or more parties to procure and maintain insurance for certain types of risks); and more.
Of course, there are MANY other provisions that go into even the most basic client contracts, including the templates you can purchase from Renegade Legal. However, the above clauses are critical to any successful client relationship, and should be well thought out, clearly communicated and made part of your written agreement.
Do you need a Client Agreement template that covers all of the above – and more? Grab one from the Contract Shop, where you can find dozens of essential legal templates created specifically for small business owners and online entrepreneurs!
DOWNLOAD YOUR FREE LEGAL ESSENTIALS CHECKLIST