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Announcement: The Common Draft desk book of contract clauses and templates, with extensive research notes and commentary, is posted (in draft). If you’d like to be notified of significant developments in the project, please subscribe to updates at right, because I’ll be posting announcements on this blog. See also my first e‑book, Signing a Business Contract? A Quick Final Checklist for Greater Peace of Mind.

Suppose that a contract gives one party the right to audit the records of another party. The audit provision, though, doesn't specify that the audit right will survive termination of the contract.

In that situation, if the contract were to be terminated, then the audit right might die with it. That's what happened in New England Carpenters Central Collection Agency v. Labonte Drywall Co., No. 14-1739 (1st Cir. July 31, 2015) (affirming district court's judgment). As summarized by the appeals court:

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A contract without a "sunset clause" might become a millstone for one of the parties. For example, the Dairy Queen restaurant chain is still having to deal with franchised restaurants under contracts signed in the 1940s that restrict the chain's ability to impose uniform standards far more than modern-day contracts do. See Martha Neil, Decades-old contract lets historic Dairy Queen apply 'rogue ice-cream rules' (ABAJournal.com 2015).

Of course, even a sunset clause might not help if the contract has an "evergreen" automatic-extension clause and the opt-out date rolls by unnoticed:

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The Department of Labor has released an Administrator's Interpretation asserting that, in determining whether someone is an independent contractor or an employee (for Fair Labor Standards Act purposes), what matters is the "economic reality"; the Interpretation de-emphasizes the traditional common-law test (used by the IRS), which focuses on who has the right to control the means and manner of the work.

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See this summary by Prof. Nancy Kim, who says in part:

Under the law, effective July 1, a "technology business" is defined as a "trade or business that derive the majority of its gross income from the sale or license of products or services resulting from its software development or information technology development, or both."

It excludes businesses that are part of the broadcast industry or any telecommunications carrier.

There are exceptions, such as when the restrictive covenant is in connection with the sale of a business or partnership.

Furthermore, agreements to protect trade secrets are still valid.

(Extra paragraphing added.)

Arbitration streamlining

This post provides additional annotations and commentary for the Common Draft arbitration-streamlining clause.

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