In Spotting Issues, a Miss Can Be as Good as a Mile

It might be easy enough to spot a particular issue when structuring a transaction. But addressing that issue appropriately in a contract requires careful aim, as anything other than a direct hit might create awkward problems.

For example, I saw on Twitter, via the indefatigable Rob Hyndman, a link to this blog post by Michael Fitzgibbon of the Ontario employment and labor law firm Watershed LLP. The post discusses a recent Ontario court opinion addressing a dispute regarding termination of an employee.

The contract between the company and the employee included the following:

In the case that the Company would decide to terminate the contract with the employee in the first 4 years after the signature, the Company will pay to the employee an indemnity compensation of two (2) years salary including the bonuses.

In 2011 company management discussed terminating the employee. They decided to do so, but elected to wait until the four-year period had run, so they could avoid having to pay two years’ salary. The court held, unsurprisingly, that the company still had to make the payment, because it was triggered not by termination but by the decision to terminate.

Whoever drafted the contract had perhaps been thinking in conversational terms. In the software-code world of contract drafting, being casual in addressing an issue can have unexpected implications.

So when coming up with contract language to address an issue, be focused. Run through in your mind how it might play out in different scenarios, then adjust the language as necessary.

About the author

Ken Adams is the leading authority on how to say clearly whatever you want to say in a contract. He’s author of A Manual of Style for Contract Drafting, and he offers online and in-person training around the world. He’s also chief content officer of LegalSifter, Inc., a company that combines artificial intelligence and expertise to assist with review of contracts.