Injunctive Relief

Under any type of employment agreement, including a consulting agreement, confidential information may be disclosed by the employer. Such confidential information may include any information not known to the public that if disclosed could adversely affect the employer’s business, including information such as:

1. Trade Secrets
2. Customer lists
3. Intellectual property
4. Research
5. Sales, makering, or litigation strategies

Term of an Expert Consulting Agreement

Generally, an expert consulting agreement works like a standard employment agreement – at will – where either party can terminate the relationship at any time.

Because employers hire experts to accomplish a specific task and are most interested in results (see previous blog: Interests of Experts and Employers When Entering a Consulting Agreement), different types of term statements may be in this interests of the employer such as:

Limited Time Period

 “The Agreement will expire in 1 year”

Advantages for Expert

• If the expert’s consulting rates rise over the year, they can be negotiated in a new consulting agreement after the term expires.
• Obligation termination certainty, such as confidentiality or non-compete obligations

Disadvantage for Employer and possibly the Expert

• The employer will have to do a new consulting agreement after the term expires which is probably work the employer does not prefer doing.
• It also highlights the possibility of the expert not getting work from the employer after the term expires.

Advantage for Employer

• If you want an expert to perform a task within a certain amount of time, and if that task is not completed within that time period, you can use the rigid term to enforce penalties on the expert such as a lower rate in a future consulting agreement.

Indefinate

“The Agreement will remain in effect until terminated.”

Advantages for Expert

• As long as the agreement is not terminated, the employer will be able to give new work to the expert.
• If the employer’s company is big, the expert may be able to work for different departments within the company without needing a new agreement in place

Advantages to Employer

• The employer will not have to do a new consulting agreement ever again (unless the expert changes his or her rate).
• The rate is locked in at least until expert requires a new agreement.

(Hybrid between #1 and #2 above) Renewable Term

 “Renewable upon reasonable terms and conditions as may be agreed upon by the Company and the Consultant”

OR

“Employer may, at its option, renew this Agreement for an additional One (1) year term on the same terms and conditions as set forth herein by giving notice to Expert of such intent to renew on or before [Notice Date].”

During (or after) the term of the agreement, the employer might want to limit expert’s ability to perform competitive activity in the employer’s line of business.  It is important to not completely eliminate the expert’s ability to find other consulting work during (or after) the term of the Agreement if it infringes on the expert’s right to earn a living (see previous blog: Writing an Effective Non-Compete Clause).

This article is part of the blog series Improving Your Expert Consulting Agreement.

Conflicts of Interest

Although a consulting agreement may contain just a simple statement reminding the consultant that they must avoid any conflicts of interest, the obligation of the employer/attorney hiring the expert may be greater than that of the consultant to verify the consultant is truly not conflicted.

What are conflicts of interest?

Conflicts of interest can be defined as any situation in which an individual (or corporation) is in a position to exploit a professional or official capacity in some way for their personal or corporate benefit.

In terms of experts, a conflict of interest can arise when the expert or his/her partner (spouse, business partner, etc.) or employer, has a financial or other interest that could unduly influence the expert’s position with respect to the subject-matter being considered. An apparent conflict of interest exists when an interest would not necessarily influence the expert but could result in the expert’s objectivity being questioned by others. A potential conflict of interest exists when a reasonable person would be uncertain as to whether or not the interest should be reported. Examples of conflicts of interest:

A proprietary interest in the subject matter (e.g., ownership of the patent in question)

1. A financial interest (e.g., shares) in a business with an interest in the subject matter
2. Recent employment in a business with an interest in the subject matter
3. Direct or indirect financial or other benefit or promise of such benefit from a business with an interest in the subject matter 
4. Confidentiality obligations from past employment

It is important to note that conflicts of interest do not only apply in legal cases. As an example: Expert is hired to provide technical advice to Company A. Expert has a significant number of shares in Company B, Company A's competitor. Expert has a conflict of interest that must be reported before beginning work with Company A. Company A may choose to waive the conflict -- it is not Expert's determination to make.

Problems Arising from Expert’s Conflict of Interest

Not only can an expert be disqualified from a particular case if an expert’s conflict of interest is uncovered, the expert will likely have his reputation permanently damaged and thus hinder his ability to find new work as an expert witness. Depending on his area of expertise, the expert may face professional discipline with a professional organization. The attorney may also be disqualified from the case or subject to a claim of malpractice for not thoroughly researching the expert before retaining the expert. Further, neither the lawyer nor his client will be pleased to see that a new expert must be retained at the last minute.

How to avoid expert conflicts of interest

When interviewing potential experts, the Attorney/Employer should disclose to the expert:

 the names of all potential or actual parties to the case

1. the names of all  and counsel (both sides)
2. a copy of the complaint (if it exists)
3. a copy of the opposing expert’s opinion (if permitted and if it exists) so that the expert can determine if he or she has previously rendered an opinion on those facts or circumstances. 

The expert should disclose the following to the Attorney/Employer:

1. All previous employment, specifically including any employment for the opposing party or the opposing party’s counsel
2. Any contact with the opposing counsel
3. Any articles, books, lectures  that have been written or disclosed by the expert on the subject-matter
4. Any financial or other interest in the opposing party’s business or the subject matter of the case

Other considerations

Experts should continually be aware of possible conflicts of interest and should disclose any potential conflicts as soon as they arise.

Attorneys should not actively seek out experts to interview with the sole purpose of creating conflicts and limiting the pool of experts for the opposing attorney. If the court suspects that an expert was contacted to create a conflict, the court may refuse to disqualify the expert. In that case, the intentional disclosure of confidences to the now-other side's expert may boomerang.

Sample Clauses

Preventing conflicts of interest through tight consulting agreements is the employer’s/lawyer’s first line of defense against potential claims of negligence or malpractice in retaining an expert without a proper vetting of the expert.

1. No Conflicts.  Consultant represents and warrants that it has no current commitments or obligations that will conflict with or otherwise interfere with or impede the performance of the services called for under this Agreement.
2. No Conflict of Interest.  Consultant affirms that there exists no actual, potential or appearance of conflict between Consultant and its business or financial interests (including, without limitation, those of his/her immediate family members and business partners), and Consultant’s performance of the Services.
3. No Conflicts. Consultant represents and warrants that: (a) Consultant is not bound by, and will not enter into, any oral or written agreement with another party that conflicts in any way with Consultant's obligations under this Agreement or any agreement made or to be made in connection herewith; and (b) Consultant's agreements and performance under this Agreement and such related agreements do not require consent or approval of any person that has not already been obtained.
4. No Conflicts. Consultant represents and warrants that he is not a party to any agreement or business relationship that conflicts with the terms of this Agreement or that adversely affects Consultant’s ability to perform the Services for Company. Further, Consultant agrees that he will not enter into any such agreement or business relationship during the term of this Agreement.
5. Conflicts. Consultant shall perform the Services in good faith and shall avoid any conflicts of interest in the performance of its obligations under this Agreement.
6. Conflicts.  I represent that my performance of all the terms of this Agreement does not and will not breach any agreement I have entered into, or will enter into with any third party, including without limitation any agreement to keep in confidence proprietary information acquired by me in confidence or in trust prior to commencement of my Relationship with the Company.  I represent that I do not presently perform or intend to perform, during the term of the Consulting Agreement, consulting or other services for, and I am not presently employed by and have no intention of being employed by, companies who businesses or proposed businesses in any way involve products or services which would be competitive with the Company’s products or services, or those products or services proposed or in development by the Company during the term of the Consulting Agreement (except the companies listed in Exhibit X).  If, however, I decide to do so, I agree that, in advance of accepting such employment or agreeing to perform such services, I will promptly notify the Company in writing, specifying the organization with which I propose to consult, become employed by, or otherwise provide services to, and provide information sufficient to allow the Company to determine if such work would conflict with the interests of the Company or further services which the Company might request of me.

Ideally, the expert would also sign a confidentiality agreement and a protective order. Should the expert not be permanently retained for the case/project, such agreements would protect the client in the event that the expert later sought to testify for an opponent.

This article is part of the blog series Improving Your Expert Consulting Agreement.

Limiting Hours Clause

When retaining a new expert, an employer never knows how carried away an expert might get with an assignment. It is possible that the expert might misinterpret the assignment from the employer. It is also possible that the employer will not exactly know what to request of the expert and will figure it out along the way. To prevent an expert (whether a newly hired exert or not) from getting too far down the wrong path, it is best to limit the number of hours the expert works on any given task.

Example:

CONSULTANT shall not exceed four (4) hours of Services per any one request for Services unless COMPANY provides prior (written) approval to exceed this limitation.

This allows the employer to check the work of the expert every four hours because the expert may not spend more than 4 hours on any task.

This article is part of the blog series Improving Your Expert Consulting Agreement.

Determining Independent Contractor (Consultant) Status

Most of the time, an expert’s consulting agreement contains a clause stating that the expert’s relationship between the expert and the employer will be an “independent contractor.”

Employers that define the expert’s employment as an “independent contractor” gain tax and legal advantages.

Tax Benefits to Employers

An employer's tax liability is determined by the worker's (expert’s) employment status – In the US, a worker is either an employee or an independent contractor. If an employer classifies a worker as an “independent contractor,” that company does not have to:

1. Withhold federal, state, social security taxes
2. Pay unemployment or workers compensation insurance
3. Offer benefits such as sick leave, vacation, health insurance, and stock options

Not only does this save employers a lot of money in taxes and insurance costs, but also saves money due to the accounting and HR time that they would have spent in hiring and paying the worker as an “employee”.

If an employer incorrectly classifies a expert as an “independent contractor,” the employer may be liable for back taxes and insurance. Since it is very common for experts to work on an hourly basis (due to their high hourly rates and limited engagements), it is unlikely that employers will have this problem when hiring experts as “independent contractors”.

Legal Benefits to Employers

Employers are usually not held vicariously liable for the tortious acts and omissions of their experts (independent contractors) because employers do not have the same control and supervision over their experts such as that found in an employer-employee relationship unless:

1. the expert injures an invitee to the employer’s real property;
2. the expert is involved in an ultra-hazardous activity (such as blasting with explosives); or
3. the employer has held out the expert as if the expert was an employee, and thus is estopped from denying liability.

What’s in it for Experts

The bottom line for experts is money. In exchange for the benefits to the employer as listed above, experts demand higher hourly rates and payment certainty.

This article is part of the blog series Improving Your Expert Consulting Agreement.

Expenses (Reimbursement) Clauses

Whether or not you anticipate expenses arising from your expert’s activities, it is best to list possible expenses and set forth whether such expenses will be reimbursed or prepaid by the employer so as not to leave the matter open for debate at a later time.

Possible phrases within expense clauses might include:

• Reasonable out-of-pocket office expenses (including telephone, facsimile, and overnight courier charges)
• Pre-approved equipment purchase/rental, such approval must be in writing
• Pre-approved airfare and lodging expenses, such approval must be in writing
• Other reasonable travel expenses (including without limitation meals, gratuities, ground transportation, parking fees)
• … not to exceed $X.
• An advance payment of $X shall be paid to expert to cover Y cost which shall become property of employer and returned to employer within thirty (30) days of the conclusion of experts’ services.
• … shall be responsible for all out-of pocket expenses.

Using the term “pre-approved” will prevent the expert from blind-siding the employer with a large expense report at the end of an accounting period. “Reasonable” is a purposely vague term inserted to smooth the effect of overly broad or overly strict obligations by introducing common sense into the interpretation of what is expected of the expert.

The employer should also include a statement that the expert must provide the employer with receipts for all expenses in which reimbursement is sought.

This article is part of the blog series Improving Your Expert Consulting Agreement.

Intellectual Property Clauses

Intellectual property (IP) refers to creations of the mind: inventions, literary and artistic works, and symbols, names, images, and designs used in commerce – basically anything that might be protected by patents, copyrights, trademarks, and trade secrets.

The main goals of an intellectual property clause in an expert consulting agreement are as follows:

• Establish that the employer does not have any rights to anything created by the consultant either before the date of the consulting agreement or outside of the scope of the consulting agreement.
• Ensure that the employer retains all rights to whatever the consultant creates under the scope of the agreement during the term of the agreement.
• Determine whether the employer or the consultant retains rights to anything else the consultant creates or helps to create during the term of the agreement.

The employer may also include one or more clauses that protect the employer from any potential third party claims to intellectual property provided by the consultant to the employer during the term of the agreement. Such a clause may waive claims or limit liability for intellectual property mistakenly provided by the consultant to the employer.

An intellectual property clause may also include different protections between a “work made for hire” and anything that is not considered a “work made for hire”. A “work made for hire” is an exception to the general rule that the person who actually creates a work is the legally-recognized author of that work. Pursuant to copyright laws, if a work is classified as “work made for hire” (as determined by a court), the employer (not the employee) is considered the legal author. In the event that a work provided by consultant to the employer may not be classed as a “work made for hire,” employers may protect themselves from such event by requiring the consultant to assign or license all work (not just work that is classed as “work made for hire”) to employer that was provided by the consultant to the employer.

This article is part of the blog series Improving Your Expert Consulting Agreement.

Protect Your information with a Confidentiality Agreement

Usually confidentiality agreements (or confidentiality clauses in a consulting agreement) are used between employers and experts when the employer may expose the expert to internal proprietary information regarding the employer’s products or business processes.. If no sensitive information is being exchanged, a confidentiality agreement may not be needed, but in general, it’s always best to err on the side of caution. A confidentiality agreement can be either one-way (only one discloser of sensitive information) or two-way (if sensitive information is exchanged both ways between an expert and employer). For the purpose of the article, we will discuss one-way agreements as it is the most common in an employer-expert relationship. It is important to note, however, that two-way confidentiality agreements are usually drafted more fairly because obligations are reciprocal.

There are four main elements of a confidentiality agreement:

• Definition of Confidential Information
• Duty Not to Disclose
• Duration
• Remedies

Definition of Confidential Information

The first thing to do when developing a confidentiality statement is to define precisely what ‘confidential information’ means, respective to your situation. This can entail proprietary business processes, plans, customers, clients, legal opinions, etc. A basic definition for confidential information is as follows:

“Confidential Information” shall mean any information provided by Employer to Expert (whether in oral, written, or digital form) including but not limited to, trade secrets, business processes, manufacturing processes, business plans, inventions, techniques, data of any kind, drawings, customer lists, marketing data, financial statements, sales data, proprietary business information of any sort, research or development projects or results, tests, and / or any non-public information which concerns the business, operations, ideas or plans.

Confidential information must be limited to information that is not already known to the recipient, not publically available, or not disclosed elsewhere. The common limitations to what can be considered information are as follows:

• Information available to the public through no wrongful act of the receiving party
• Information in recipient’s possession beforehand
• Information legally obtained from a third party with no confidentiality agreement to discloser
• Information which has been independently developed by the receiving party

The best way to handle defining confidential information is to cast a wide net to include as much information as possible. It is also possible to draft language stating that all information disclosed is assumed confidential during a certain time period or relating to specific subject matter unless otherwise designated.

Duty Not to Disclose

The next important item to include is a ‘duty not to disclose’ clause which describes who the information can be shared with and what it can be used for. For example, if the expert is part of a larger consulting firm, you may want to restrict the expert to only discuss the information within the expert’s firm. At the same time, it is good practice to define what the information can be used for. If the information is only to be used for a specific project, clearly state that in this clause. An example ‘duty to not disclose’ provision may be drafted as follows:

Expert hereby agrees not to use or disclose any Confidential Information except to employees or professional advisors having a need to know the Confidential Information in order to carry out discussions with Expert concerning the Project.

Once anyone other than the expert, such as in the example above, is allowed to receive the confidential information, it is important to require the Expert to make sure the new recipient will also not disclose the confidential information. Therefore, a necessary addition to the preceding example would be:

Such employees or professional advisors shall be bound by terms of confidentiality at least as stringent as those provided in this Agreement.

Duration

Any time limits attached to a confidentiality agreement must be reasonable. There are two main types of time limits in a confidentiality agreement: (1) the term in which confidential information may be disclosed; and (2) the term which confidential information must remain confidential. Common time limits are between 1-5 years. The purpose of confidentiality agreements is to protect sensitive information from being leaked, implying financial harm to the discloser if it is leaked. The duration of the agreement should reflect the time period where releasing the information can be deemed harmful. An example ‘terms’ provision may be drafted as follows:

The term of this Agreement shall continue for a period terminating one (1) year following the Effective Date of this Agreement. The foregoing confidentiality commitments shall continue for three (3) years following the Effective Date of this Agreement.

Remedies

Money damages are often not sufficient for breaching confidentiality obligations. Therefore it is common to include an ‘irreparable harm’ clause where it is agreed upon that disclosing the confidential information would cause irreparable harm against the discloser. Without this provision, equitable remedies such as injunctions will be more difficult to obtain.

Resolution of Conflicts

The agreement should first set forth how and where conflicts will be resolved (e.g., court, binding arbitration, mediation). Second, governing law should also be set. Because it is impractical to be familiar with the laws of foreign (different states or different countries) jurisdictions, the employer should select the governing law to be one that is more favorable to the employer and should not be changed except in exceptional circumstances. It is common, however, to compromise on the court selected to resolve conflicts (i.e., geographically in between the two parties).

Rather than write up a whole new agreement, we will point you to a confidentiality agreements we found on VTIP.org for both a One-Way Confidentiality Agreement and a Mutual Confidentiality Agreement.

This article is part of the blog series Improving Your Expert Consulting Agreement.

Writing an Effective Non-Compete Clause

A non-compete clause is used, upon the conclusion of the expert’s employment with a company, to prevent a former employee (or former expert) to use the competitive advantage that they gained in working for their former employer for the benefit of themselves in starting a new business or for a new employer. The non-compete clause goes beyond a confidentiality provision in an employment contract (or expert consulting agreement) further prevents confidential or competitive information to be used against the former employer by agreeing agrees not to pursue a similar profession or trade in competition with the former employer for a certain period of time. Confidential information can include trade secrets, customer lists, upcoming plans, market data, product improvements, product failures, intellectual property, or other sensitive information.

Non-compete agreements have been closely scrutinized by courts, and have been consistently been overturned when they are found to be unreasonable. If they are written too broadly, non-compete clauses may be limited in scope or duration or not enforced at all. An expert cannot be restricted from carrying out their work except to the extent that is necessary to protect the employer. A key concept used when dealing with non-competes the reasonableness of the non-compete clause. three key limitations:

• The scope of the agreement: If the scope of the non-compete is found to be too broad, a court may modify the non-compete to make it narrower, or reject the clause entirely.
• The geographical area: This depends largely on the circumstances of the services provided by the expert and the nature of the employer’s business.
• The time duration: Also largely dependent on the circumstances, the time duration should only be as long as is needed to protect the employer’s interests.

Benefits to Employers:

• Non-compete clauses will help protect the employer from giving away sensitive information to its competition. The projects experts work on are typically highly critical and deal with valuable information. It is important to be specific in describing what needs to be protected.

Drawbacks for Experts:

• Non-compete clauses may restrict experts from getting work in the same field after the current project is over. Because the often short-term and specific nature of expert work, it is very important to experts that the non-compete clause does not prevent them from working in the future.

A well written non-compete clause will strike a balance between these two points and be acceptable for both the expert and employer. It will have a specific and reasonable scope, geographic limitation, and duration of time.

With experts, non-compete clauses are not always used because they can be so difficult to enforce. A confidentiality agreement (or non-disclosure agreement) is often used in conjunction with or in place of a non-compete clause to protect the employer’s private information.

This article is part of the blog series Improving Your Expert Consulting Agreement.

Quick Survey for Experts and Employers

These surveys are only 10 questions each and should only take a couple minutes. Please take a moment out of your day to help us build a better service for you. We appreciate your feedback. Thank you.

For Employers / Attorneys:

http://www.surveymonkey.com/s/FRN66N6

For Experts:

http://www.surveymonkey.com/s/NZNQ2TG