Key Clauses to Include in IT Company Contracts: Supplier and Partner Contracts, Licensing, and Employment Agreements

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By: Minh Luong and Neharika Salhotra

IT companies need a range of contracts, such as agreements with suppliers or partners, contracts with their employees, and licensing agreements. It is crucial that tech companies put in the time and effort at the start of a new contract to ensure that all important clauses are covered.

Below are key clauses, in three very important types of professional contracts, that IT companies should absolutely include. These clauses can be useful for several other agreements and should be appropriately included with the assistance of an attorney. 

Supplier and Partner Contracts

Depending on the type of business your IT company has, partners such as suppliers or manufacturers may be involved in the day-to-day workings of the company. These types of contracts put in place terms of payment, dispute resolution measures, and criterion for termination to avoid subsequent disputes due to unclear communication or guidelines. Here are some key clauses that must make it to your contract:

  • Timeline Clause: Timeline clauses establish the expected dates of deliverance for the service provider and create scope for accountability. It prevents any disputes that may arise due to unclear schedules or due dates and ensures that both parties agree with the timeline of the partnership that is being taken forward.
  • Dispute Resolution and ADR Clauses: Dispute resolution clauses allow for effective resolution of claims and disputes. Through a dispute resolution process, parties involved can focus on finding an effective solution through a clearly defined procedure. Alternative Dispute Resolution (ADR) clauses are sometimes included as well and specify arbitration or mediation measures. This prevents parties from having to undergo the complicated process of seeking individual legal redress through a common mediator outside of the court system.
  • Termination Clause: Termination clauses allow everyone involved in a contract to be clear about why an agreement can be terminated and elucidates upon notice requirements and obligations of the two parties involved prior to the termination date.

Employment Contract

What happens when your firm is obligated to share certain information with employees about a new software it has in development? What if after revealing this information, an employee is offered more pay to join a competing firm and you are afraid of having your information shared? Employee contracts protect IT companies from the risk of losing their biggest asset: innovation. It also ensures that employees feel that their ideas and innovations are protected and will not be misused by the firm. Here are some key clauses that make for an effective employee contract:

  • Confidentiality Clause: Confidentiality clauses are crucial to jobs that require working with a client’s sensitive information or restricted business information. It ensures that employees do not intentionally expose anything outlined in the clause as confidential and protects the business and the clients from solicitors or other potential harms that may result from the sharing of this information.
  • Non-Compete Clause: Non-compete clauses prevent employees from leaving the employer’s business for another, competing firm. While these are typically unenforceable in California, they are applicable in certain states and help protect confidential business information of employers.
  • Product Development Clause: Product development clauses are crucial wherein content creation or innovation by individual employees is the greatest asset to the firm. It outlines who owns or what would be the arrangement for ownership of this property, whether intellectual or otherwise, under different circumstances. 

licensing agreement

Licensing agreements are the key to protecting software from accusations of not delivering what was promised, such as payment terms and price, information needed from the consumer and frequency. Software is also protected by intellectual property rights and if you are designing software for other individuals, it is crucial to ensure that they are not misusing any information shared with them. Much like employees, they must also be detracted from offers from other companies that try to seek information about a competing firms’ software development techniques. Some clauses that help achieve this purpose are as follows:

  • Product Liability Clause: These clauses clarify which entity will be held responsible for any harm caused by the product during its usage by a consumer. Often, the company most heavily involved in the manufacturing case may choose to take on this liability.
  • Exclusivity Clause: Exclusivity clauses maintain that the licensee will only conduct business with one licensor at any point. This prevents the licensee from being distracted with other, competing products or jobs. It can also aid licensees through incentives or bonuses offered by the licensor to ensure exclusivity.
  • Performance or Diligence Clause: Performance or diligence clauses require that the licensee live up to certain requirements. If they fail to do so, the parent company may levy penalties or terminate the agreement.

Conclusion

In order to ensure all contracts are valid, viable, and cover all bases contract the trusted Chugh, LLP contract attorneys.

Work Cited

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