Seth's Blog : Contracts and power

Contracts and power

A written contract benefits the party with the least power.

Power might be in the form of money, access to plenty of lawyers or simply a willingness to burn it all down to the ground.

In the moment before a contract is signed, the lower-powered party momentarily has more power. That’s because the other entity wants what you have. But as soon as they have it, it’s only the contract that offers concrete protection against future events.

Handshake agreements are great when there’s an ongoing, stable interaction. As long as each side is honorable, the other party can continue to do what they said they were going to do. But when priorities or outside factors shift, an at-will arrangement can end up harming the person who can least afford it.

The two things to focus on are:

Is the contract specific enough so that there’s no doubt about who is supposed to do what, even when the world changes?
Are the remedies in the contract clear enough so that if the contract isn’t honored, the lower-power party can easily and efficiently obtain a fair result?

This is why adding a binding informal arbitration clause to a contract is a smart idea. Why it makes sense for there to be worker and other protections in the law. And why we need to reinforce and applaud judicial systems that enforce clearly defined agreements.