
What is Indemnification? - naitpatel
https://www.shouldisign.com/what-is-indemnification/
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jonstewart
IANAL, but I owned my own tiny business for a few years. Here's what you need
to know about indemnification clauses:

\- your lawyer will zero in on them like a fly to poop

\- you could easily spend thousands on lawyers playing indemnification clause
ping-pong; provide guidance that you only care about "egregious" clauses

\- the larger/more powerful party will always get the indemnification clause
they want

\- if a claim is ever made against you, you might be going out of business;
that's life

\- get business insurance and spend your time worrying about other things

This is not to say indemnification clauses are not legally important. They
are! But there's almost nothing that plucky little startup.com can do about
GlobeCorp's GC's office devotion to their indemnification clause. It's part of
the risk of running a business. Make sure your business's corporate paperwork
is in order so the "corporate veil" cannot be "pierced" and continue on with
life.

~~~
jwilliams
Yup.

GlobeCorp is trying to transfer risk to startup.com. So they push these types
of clauses. The reality is that startup.com can't manage that level of risk if
it actually materialized (they'd fold)... so GlobeCorp really hasn't managed
their risk at all.

~~~
dublinclontarf
What risk?

If it's litigation risk pushing it onto startup.com now gets GloboCorp off the
hook. startup.com goes out of busiiness, GloboCorp is fine.

If it's risk of simple failure then maybe.

~~~
jasode
_> If it's litigation risk pushing it onto startup.com now gets GloboCorp off
the hook._

That's not how _indemnity_ works. If Apple sells a Macbook with a flawed
battery that explodes in consumers' laps, the plaintiffs will sue _Apple_ and
not the outsourced Chinese battery factory. Just because the Chinese company
agrees to an indemnity clause, it doesn't prevent lawyers for the plaintiffs
to _name Apple as the defendant_ on the lawsuit.

Indemnity is about _monetary compensation_ from the other party and not some
type of shield against lawsuits. That means that Chinese company _compensates_
Apple's cost of lawyers and losses to pay judgments and settlements. To
grandparent poster's point, if Chinese battery company goes out of business,
the indemnity clause means nothing since Apple was unable to receive
reimbursement from that manufacturer.

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djsumdog
I've never really looked for these, or thought about them explicitly, in my
contracts. They feel very standard and I feel like I may have overlooked the
implications for these in the past.

I have refused to sign contracts with non-competes several times in my life.
Most companies either remove it or say, "No there's not a not compete. Oh ..
huh .. well I'll remove it." I've had two companies fight me over these and I
came close to walking away from both, but we ended up being able to work
things out.

Most realize they're not enforceable in most states and I've even seen
contracts that specify "except in California" since there are laws restricting
non-competes there.

~~~
daveguy
How did you work things out? They caved or some compromise? If it was a
compromise do you remember what it entailed?

~~~
mikekchar
You can always ask for money. If someone asks for a 6 month non-compete, ask
for an X month parachute (where X depends on how narrow the field is and how
likely it is for you to find a job in a different field). You might have to
negotiate something wrt being terminated with cause, or if you terminate the
contract.

That can end up being a bit complicated, though. My standard is to only agree
to non-competes that trigger when my service ends up being more than 12 months
(I have no special skills that would hurt anybody in a specific industry in
such a short time). Then I ask for a 3-4% increase in salary, depending on
what industry they want me to stay out of. Basically this is my insurance
money and reflects my ability to get a job in a different industry.

If the non-compete were for programming in general, it would cost them up to
50% of my salary. A non-compete when I'm on contract will likely cost up to
100% of my normal fee, depending on the duration of the contract. TBH, unless
they are already paying through the nose for exclusive access to specialised
skills, I've never heard of contract work having a non-compete clause.

Another thing you can/should do is make sure that any exercising/vesting of
options/stock carry over into the non-compete period.

Personally, I love non-competes. I use the time for writing free software.

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devoply
In reality it does nothing if the party that's going to indemnify you does not
have funds to do so. You are much better getting insurance if you really think
there is a risk of something like this happening to you. There is a much
greater level of protection than a mere clause in a contract. As a contractor,
you should never agree to such a clause unless you are a big company capable
of covering such a clause. If you a contractor put in such a position, go get
insurance and make the company putting in the clause pay for it. That's the
cost of doing business with them.

~~~
500ferrets
What's involved in getting this type of insurance? Do you just fork over some
cash to the insurer or is there a vetting process?

~~~
devoply
The insurance company usually looks at the contract to decide. They don't care
that much though. It's really a question about how much coverage you need in
terms of price. And it's not that expensive. A few hundred bucks will buy you
multi-million dollar protection.

~~~
500ferrets
Thanks.

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laser
Completely unrelated to the article: Why do sites (like this one) increasingly
do some hacky javascript-based non-native-scrolling that makes the UX shit? Is
this just because I'm on desktop and it's actually well-suited for mobile or
something? Or is it just designer-bloat so sites can demonstrate what a
special snowflake they are? Or is there some utility I'm missing/am I just
being oversensitive?

~~~
acchow
I'm on desktop - feels like native scrolling to me.

Safari.

~~~
Cyphase
Same for me with Firefox on Linux.

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freddyc
Two general rules I follow:

1\. You want me to indemnify you? Hahahahahaha. No.

2\. You want to indemnify me? Sure, sounds good.

~~~
mysterypie
> Hahahahahaha. No.

Then you probably get few contracts. Every contract is full of so much garbage
that you could argue over that if you actually did so, then:

\- you'd frustrate the other party and eventually they'd hire someone else, or
stop working with you in the future

\- you'd spend large amounts of your own time, or worse, money for a lawyer

\- you drain your own psychic energy on that instead of doing programming or
whatever is it that you do

------
ivraatiems
An important takeaway not specifically stated here: Don't rely on layman
knowhow and common sense when negotiating contracts. Lots of people, myself
included, assume we can understand things outside of our areas of expertise
easily because we are experts in one field or another. Such an assumption of
unqualified competence is wrong and can be dangerous.

Get a lawyer, have the lawyer review anything you might be planning to sign.
Going into a contract negotiation of any kind without an attorney is like
bringing a plastic spork to a gunfight and shouting "Careful, I've got a
knife!"

------
greggman
I took a picture of a sculpture of 4 men staring down at the Louvre. It's on
my flickr marked CCBY. Some magazine in the UK wanted to use it for free and
they wanted me to sign an indemnification clause. I have no idea what the
legal ramifications or licensing issues there with pictures of things in the
Louvre so no, I wasn't about to sign. Certainly not for $0

Separately I thought one point of CCBY to me was NOT having to have them
contact me to use the images I post.

It did cross my mind that it might have been a scam. Get me to sign, claim
breach, take my money. (probably not but it did cross my mind)

------
chrisbennet
I was once asked to sign a software development contract that would have made
me _" responsible for estimated loss of profits"_. I quoted that part of the
contract and wrote back: "Nice try but yeah, no. :-)"

We worked something out and now they are a great client. Lawyers/companies
will put all kinds of crazy stuff in their "standard contract". I had my own
lawyer go over it and find all the other booby traps.

~~~
crdoconnor
>I was once asked to sign a software development contract that would have made
me "responsible for estimated loss of profits".

I usually walk away completely at that point. Something like this is a red
flag that you're dealing either with shysters or people who don't read what
their lawyers give them. Both imply you're going to have a bad time.

~~~
chrisbennet
If a _person_ was asking for the crazy things I see in contracts, yes, I'd
agree with you since it shows _intent_.

If you treat companies like that, you miss out on opportunities since the
crazy stuff in the contract is negotiable and the guy you're negotiating with
didn't write the contract and won't mind you crossing out the bad parts that
keep both of you from a mutually beneficial deal.

Companies are made of various factions who's goals may only be loosely aligned
with the company's goals.

The lawyer drafting the contract is trying to protect the company. If you
weren't rewarded for making the company lots of money, only punished if the
company gets sued, how would you write a contract?

~~~
crdoconnor
>If a person was asking for the crazy things I see in contracts, yes, I'd
agree with you since it shows intent.

Usually somebody did. And, if the person who hands you the contract acts
surprised about its contents that isn't good either. It demonstrates a
dangerous lack of control.

>If you treat companies like that, you miss out on opportunities since the
crazy stuff in the contract is negotiable and the guy you're negotiating with
didn't write the contract and won't mind you crossing out the bad parts that
keep both of you from a mutually beneficial deal.

This is exactly what I used to think when I encountered a guy who apparently
hadn't read his contract, acted surprised about its contents and he _was_
happy to change it.

He later ended up not paying me as he ran out of money without noticing.
Apparently he not only neglected to read his contracts, he neglected to read
his bank statements.

So far he's the only person who acted surprised about the contents of his
contract.

>The lawyer drafting the contract is trying to protect the company.

Egregious fuck-you clauses can actually hurt the company's standing in court
since a judge may decide the rest of the contract shouldn't be enforceable (at
least under UK law).

Either way, unless the client is exceptional in all other respects or you
_really_ need them it's usually worth walking away.

~~~
chrisbennet
I'm not sure I agree with you (at least not yet) but I upvoted you for sharing
your experience/data points. My own view/thoughts on this is are shaped by an
extremely small sample set so I could be wrong.

------
relaunched
I couldn't come to employment terms with a start-up because they were
unwilling to indemnify. Turns out executives were covered, employees weren't.

Their stance was part of early employee risk of joining a start-up is not
being indemnified; that risk was part of their culture at their current stage.

~~~
mikekchar
I once refused to sign a contract that had me indemnify the employer for
losses in the event that they terminated me. They wanted to be able to
terminate me without cause and then recover damages that they incurred as a
result of doing so. This was a big company too. Luckily the HR person didn't
understand the word "indemnify" and so agreed to strike the clause. Afterwards
the legal department tried to force me to sign a new contract, implying that I
would no longer have a job if I didn't sign. I sent them an email saying,
"Wanting me to sign a new contract does not seem to be one of the reasons for
termination on my existing contract. Are you saying that you will fire me
unless I agree to a new contract?" Contracts signed under duress were not
legally binding in the country where I was working. They did not reply and I
kept a healthy distance from the legal department for the time I worked there.

Contracts are annoying. Next time I look for work, I'm seriously considering
just hiring a lawyer to handle all the negotiations for me. One of the reasons
I agreed to work at my existing job is that the contract had virtually nothing
on it. I'm working on contract with them now, not full time, and they asked
_me_ to draw up the contract. I _really_ like working with people like that.

------
choxi
Could anyone elaborate on more examples of the indemnification clause in use?
The IP example was useful, but I'm still not sure if I understand it
generally.

~~~
snake_plissken
Say I rent a crane from you. In the course of renting the crane to put new air
conditioning units on the top of my building, there is an accident and the
crane causes damage to a nearby building.

If the owner of the damaged building sues you, the renter, to recover money to
repair the building, the indemnification clause(s) in the crane rental
agreement would state something along the lines that I, the renter of the
crane, would cover any costs from the lawsuit and "hold you harmless".

~~~
choxi
That was helpful, thanks!

