On unequal bargaining powers in contracts…

There is a problem with our profession. It is a problem that is now difficult to address, due to the long line of case law that has entrenched the following concepts into our system and our understanding of contract law:

  • parties to a contract deal at arms length; and
  • parties to a contract are generally assumed to have equal bargaining power, or at the very least, equal ability to seek legal advice.

But we know that in reality this is certainly not the case. Lawyer’s fees are expensive; they are beyond the capacity of many people to pay. The result is that often, in contract negotiations, there will be one party that is in a significant position of power in relation to the other party.

Lawyers know this. And here’s where the problem gets aggravated.

Big companies (or big enough companies) employ big firm solicitors. These solicitors then draft contracts that are overwhelmingly in the interests of their clients and are on no level fair.

Now I understand that the lawyers themselves are to a large extent subject to the system – to a system that makes them liable if they do not fully protect their client’s interests, to the extent that they feel that it is necessary to draft these overly conservative, imbalanced agreements.

It would be one thing if the other party had lawyers who were also strongly pushing their clients interests, and who would then counter-offer, and negotiations could proceed until a reasonably balanced position was reached. That is how the contract law system was conceived.

But when the other party is an individual with no legal representation, the entire system becomes skewed.

I deal quite frequently with authors who are faced with publishing agreements that take all of their IP rights for an insubstantial or no fee. And I am sure that this occurrence is not limited to the publishing environment – musicians face the same deal with many recording contracts, and there are many other individuals out there in the same boat. The authors I speak to are usually very reluctant to request any changes to the publishing contract in their favour. Why? Because of the unequal bargaining power. Because they are scared. They are scared that their publisher will object to their objections, and then they can kiss their publishing deal good bye. So they don’t ask for the changes.

But my thoughts are that the opposite is really the case. I, as a person with legal training and who understands what the contract is purporting to do, am not afraid to say what I don’t agree with and why. And for the most part, this gets the results I want, or at least brings me closer to them. The other party rarely slams the door in my face.

I think this happens because I know what I am reading, I know my legal rights and I make it clear to the other party that I know. And unlike what their contract would lead you to believe, the other party is not actually reluctant to budge from their initial position. They are just not expecting you to ask for changes, because they are expecting you to not know what you are reading and not know what your rights should be.

So they draft contracts that:

  • transfer all or most of your rights (in the case of IP-related contracts);
  • give you very little in return; and
  • contain indemnity clauses that basically require you to pay for everything and anything that could possible go wrong (and that includes paying legal fees, which seems absurd for a person who can’t afford a lawyer to read the contract for them in the first place).

And they do this expecting that you will just sign, not fully understanding the ramifications.

I believe that it is time that professional ethics standards developed in line with social reality. It is time for the legal profession to cease pretending that all other parties are represented, and to begin to consider the unfairness that results where a contract is oppressively drafted against the interests of a smaller party.