Gather ‘round, it’s story time again!
The “Free Agreement” – A Contract Tear Down
Narrated by your favorite business attorney – me!
Narrator: Our story opens with two gal-pals chatting over coffee. Ima Borrower and Lemmie Lendit are close friends and confidants, supportive queens who love to help lift other women up. Names are fictionalized to protect the innocent, naturally. (Really who would name their child Lemmie?)
Ima: So, Lemmie, I am finally taking the plunge and leaving my safe, boring corporate job to become a business coach. I’ve seen you grow your personal coaching business and I know this is what I want to do.
Lemmie: Amazing! I am here to help. What’s the plan?
Ima, ticking off on her fingers as she speaks: It is daunting. So much to do to get started and so many expenses! But I want to do it, right, you know? Insurance, forming an LLC, hire an accountant, get my client agreement in place, set up my website, start creating my handbooks, figure out my logo and brand… it’s a lot! Plus, I am enrolling in a coaching certification course.
Lemmie: Well, I can help you save some money. My accountant told me I didn’t need an LLC, so neither should you!
Narrator: Lemmie is coming from a good place, trying to help. But, ooh boy, she sure hasn’t read the horror story “Twisted tales of Accountants giving Legal Advice, and Attorneys Preparing your Tax Return.” (Coming soon to another online post near you.)
Lemmie: But if you really just want the LLC; you know you can always just file it online yourself. It is so easy.
Narrator: Ima doesn’t know this, but there is so much more to being an LLC than just filing online. By just filing online (and if that is all you do), you have essentially just bought yourself an expensive piece of paper that “says” you are an LLC. If she really wants to save money, she should have a business attorney set her up the right way, because fixing it later when it is done wrong or incompletely is just going to cost her more money in the long run – but that is a whole different tale for another day. OK, I will stop interrupting…back to Lemmie and Ima.
Lemmie: And you can just use my client agreement and edit it to make it work for your coaching practice. I pulled great clauses from agreements I found online and from other coaches and I have never had an issue with it with any of my clients.
Ima: Really, oh, this is going to save me so much time and money. Lemmie you’re the best!
Narrator: Ok, ok, I said I’d stop interrupting, but I have to pause the scene and take a look at this agreement that Lemmie is giving Ima. Seems like a generous offer on first blush, but it just might cost Ima quite a bit if she ever had to enforce it. Sometimes free isn’t free after all.
I present the Client Agreement (edited to only to keep only the relevant sections):
Coach Lemmie Lendit
This Coaching Agreement (hereinafter “Agreement”), is by and between Lemmie Lendit (“Coach”) and the Client signing below.
SECTION I: SERVICES
Scope of Service. BLAH BLAH BLAH
Cancellations and Rescheduling. In the event that Client must cancel or reschedule their coaching session, 24-hour notice is required. Otherwise, Client will be responsible for the payment of the missed session.
SECTION 2: TERM AND TERMINATION
Termination of Services. Client may discontinue coaching at any time upon written notice to Coach. All Coaching Packages are non-refundable, and Client’s obligation to pay the entirety of the agreed-upon package price shall remain despite discontinuation of Services.
SECTION 3: FEES AND PAYMENT
Fees & Payment. BLAH BLAH BLAH
Refunds. Client may receive a full refund if services are cancelled before they begin, or a partial refund if sessions are missed with proper notice of at least 48 hours.
SECTION 4: CONFIDENTIALITY
Client is free to share whatever they choose during coaching sessions which will be kept confidential.
SECTION 5: OTHER PROVISIONS
A WHOLE BUNCH OFLEGALESE
Disclaimers. Coaching is not a substitute for medical or psychological diagnoses or treatments, mental health counselling, or physical therapy. Client must address mental health of physical medical concerns the proper professional.
Each Party agrees to indemnify and hold the other Party harmlessagainst any and all claims, losses, damages, liabilities, penalties, punitive damages, expenses, reasonable legal fees and costs of any kind or amount whatsoever, which result from or arise out of any intentional, reckless, or negligent act or omission of the indemnifying party occurs in connection with this Agreement. A Parties’ maximum liability to the other arising under this section shall not exceed any amount recovered or recoverable by Client through insurance.
Limitation of Liability.
In no event shall Coach be liable for any damages in excess of fees paid by Client for services under this agreement.
Severability. If any provision of this Agreement shall be held to be invalid or unenforceable for any reason, the remaining provisions shall continue to be valid and enforceable. If a court finds that any provision of this Agreement is invalid or unenforceable, but that by limiting such provision it would become valid and enforceable, then such provision shall be deemed to be written, construed, and enforced as so limited.
Client has read this Coaching Agreement BLAH BLAH BLAH.
Narrator: On its face it seems like it covers the basics: services, term & termination, fees, and some “legalese.” But does it apply to Ima’s practice? And is it enforceable? Let’s dive deeper.
The Tear Down You Have Been Waiting For
First, Lemmie is a life coach, and Ima is an aspiring businesscoach, so Ima will likely need to change a good deal of the BLAH BLAH BLAHs in the Services sections to apply to her practice. But check out the disclaimer. That makes sense for a life coach to include, but Ima would need explicit disclaimers that make more sense for a business coach. Perhaps related to the business’ legal or financial issues, or any guarantee of revenue, etc.?
Second, read the sections Cancellations and Rescheduling, Termination of Services, and Refunds. They are unclear and contradictory! Looks like Lemmie might have grabbed different clauses from different agreements and hobbled this together without really think about how each clause fits with the other. Does she allow refunds or not?
Let’s say she doesn’t allow refunds for termination of services, seems clear, right? But she does allow refunds for cancelled sessions with proper notice (“proper notice,” by the way, is not even defined – Email? Certified mail? Carrier pigeon?). So, if a Client was reading this carefully, they could simply “properly” cancel each session one at a time and functionally skirt the “no refunds for termination” clause and get a full refund! Yay for the Client, not so much for Lemmie.
Third, there’s a confidentiality clause included, which is great. But it only covers the client! What if Ima is a coach of other coaches? She certainly doesn’t want her client to use her Intellectual Property (e.g., methods, handouts, checklists, videos, etc.) to create their own coach of coaches program and compete with her using her own Intellectual Property!
Last, check out Indemnification and Limitation of Liability. This is really legal language, and it’s easy for a layperson to just sort of gloss over when reading them (or skip it altogether). But these two clauses often go hand in hand. So, they need to complement, not contradict, each other.
Indemnification is the legal concept of making a party whole again after the suffer a loss or damages. Most commonly, parties to a contract agree to indemnify the other from third party claims – for example, if Lemmie licensed her video content to Ima, and Ima is then sued by a third party claiming trademark infringement, Lemmie would (hopefully) have agreed to indemnify Ima if such a third party claim arose. She would make Ima whole for any losses/costs Ima incurred as a result of the lawsuit.
In Lemmie’s agreement, this section is mutual – meaning both parties are agreeing to indemnify the other. It also has a cap aligned with insurance, which is reasonable. But the problem is – what insurance will apply in the case of a client having to indemnify Lemmie – especially one that is an individual?
Limited Liability is a cap on what a party will pay if they are liable for something under the agreement. So, here’s the problem with Lemmie’s agreement: limiting a client’s claims to a maximum of what they actually paid under the agreement makes sense and is reasonable in most cases but here it conflicts with the limitation under the Indemnification clause, which is presumably higher.
Lemmie included a Severability clause. This allows a judge or arbitrator tasked with interpreting and enforcing an agreement to cut out or limit any clauses which are unenforceable as written. Since there’s plenty of conflicts within this agreement, rendering those terms unenforceable, a judge or arbitrator may just cut them out in an effort to keep the remainder of the agreement intact and enforceable. So, if the refunds, cancellation and termination clauses conflict – a judge or arbitrator may edit them to the lest restrictive possibility. And Ima may find that she has to offer refunds on terminations.
The less restrictive cap may stay (the one tied to insurance) or the more restrictive one. Or, since one option would only apply to the client and one to Ima, both may be stricken, and no one gets made whole, OR no cap is acknowledged. In short, it’s a mess.
Narrator: Back to Ima and Lemmie now.
Ima: Wow, Lemmie this does look great.
Narrator: Ima isn’t an attorney, so it’s understandable that she missed all the issues we just covered in the tear down. It all sounds so “legal,” so it must be good. And I am just a Narrator, so she can’t hear me. Hopefully, she consults with an attorney that will catch and fix all these mistakes before Ima starts using Lemmie’s Agreement.
Ima: I am going to put this to use right away! I just met with my first potential client yesterday, so this is great timing.
Lemmie: So glad I could help. Let me tell you about some networking groups I am in…
Narrator: And end scene. Here we leave Ima and Lemmie with hopes that they live happily, successfully, and legally sound ever after. But it’s not looking so good for them in terms of that Agreement.
We hope this contract teardown (which is the business attorney’s equivalence to a “smackdown”)showed you that, much like you, coaching agreements are unique. You should never use someone else’s agreement, even if their agreement was written by another attorney, because, at best, it does not fit your business model, client’s goals and/or message; and at worst, it is a hot (unenforceable) mess.