Five Ways to Make Your California Business Contracts Work for You
Tackling common issues, from business interruptions to employment termsBy Steph Weber | Reviewed by Canaan Suitt, J.D. | Last updated on November 29, 2023 Featuring practical insights from contributing attorneys Daniel L. Blomgren and Bruce N. Furukawa
Use these links to jump to different sections:
- 1. Make Your Contracts Clear and Simple
- 2. Plan for Unexpected Events
- 3. Address the Scope of Business Interruptions and Liability Limitations
- 4. Make Sure You’re Not Overpromising in Employment Contracts
- 5. Be Aware of State Law on Classifying Contract Workers
- Find an Experienced Contract Lawyer
When a local bakery owner asked Daniel Blomgren to review a new commercial lease, a seemingly innocuous word caught his attention. “There was a section about a step up in rent, and it said ‘and’ instead of ‘or,’” says Blomgren, who represents entrepreneurs and small business owners at Coepio Legal in San Francisco.
“I calculated the difference in cost over the course of the lease due to that one single word, and it was tens of thousands of dollars,” he says. “A bad commercial lease can sink your business very quickly.”
Blomgren revised the wording so that his client avoided the expensive rent hike. Ambiguous or incorrect written contract wording is a common issue, especially when people use generic online templates. “These are the things that we’re trained to catch,” Blomgren says, adding that a good contract “will be a main pillar of your business moving forward.”
1. Make Your Contracts Clear and Simple
Clarity should be a contract’s top goal. “People think it needs to include a lot of legalese or confusing words,” says Blomgren. “In fact, it’s probably better if it is an easier-to-understand contract and has the basic terms nicely laid out so that anybody, including a jury, could pick it up and understand what’s supposed to happen.”
2. Plan for Unexpected Events
Business operations can be extremely vulnerable to unexpected outside factors. If written agreements are not carefully constructed, breaches and legal issues may result, exposing owners to fines, litigation, and negative publicity.
“We’ve been paying more attention to force majeure, or ‘act of God,’ clauses in our contract reviews and adding [verbiage for] epidemics or pandemics [post-COVID],” says Bruce N. Furukawa, a founding partner at Furukawa Castles in Burlingame whose clients include architects and engineers. “A lot of people use the American Institute of Architects’ standard form contracts, and there is no force majeure clause, so we have to add it as a special term.”
3. Address the Scope of Business Interruptions and Liability Limitations
That clause should address the scope of possible business interruptions. It should also extend protections to all parties, says Furukawa. Most construction contracts explicitly forgive contractors for delays outside their control, but other important parties are not mentioned.
“We’ve had situations where the building department is closed because someone got COVID, so the permit can’t be approved, or drawings that used to take six weeks to get reviewed now take 12 weeks or more because people are working from home and huge rolls of drawings have to be physically moved to houses,” says Furukawa. “This has become more of an issue since the pandemic, so we’re building in nonperformance protections for architects, engineers, and other consultants on a construction project.”
The limitation of liability clause deserves a second look, too. “It might say, ‘You can only sue me for up to whatever you paid me in fees,’” says Furukawa. “That’s a protective clause for the person who’s doing the work, but the other party has essentially limited themselves to a very small amount of money that they could claim for damages.”
4. Make Sure You’re Not Overpromising in Employment Contracts
Employment contracts can be helpful, but care must be taken in writing them. The at-will nature of a working relationship could be jeopardized by promises made in an employment contract and employee benefits, says Blomgren.
“You need to ensure you’re drafting correctly so you’re not giving up anything you don’t intend to.”
5. Be Aware of State Law on Classifying Contract Workers
A 2019 state law, Assembly Bill 5 (AB5), imposed more of an employment-type relationship on many workers who may have previously been classified as independent contractors. The 2020 passage of California’s Proposition 22 allowed certain industries, such as Uber and Lyft, to get out of AB5’s system statutorily. A lower California court ruled Proposition 22 unconstitutional in 2021. But in March 2023, a state appeals court reversed that decision, reviving Proposition 22 and its treatment of drivers as independent contractors rather than employees.
“Because of [AB5], small-business owners who thought they were hiring [individuals for contract work] were hiring those who may be properly classified as [full-time employees],” says Blomgren. “That can lead to a not-so-pleasant outcome.”
Spending the time to make sure you have a good independent contractor agreement is worth the trouble, says Blomgren. ”Make sure that you’re protecting yourself and your business,” he says, “especially if it’s something as important as intellectual property rights or a high-dollar-value contract.” He notes that even a low dollar-value contract can expose you to liability.
Find an Experienced Contract Lawyer
Visit the Super Lawyers directory to find an experienced contract lawyer in your area for legal advice. For more information on this area of law, see our overview of contract law and related content on arbitration and alternative dispute resolution.
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