Referral agreement

MathWhiz wants to have a simple agreement template under which MathWhiz can pay a referral commission to individuals and/or organizations that refer business to it.

The amount of the commission will be 5% of the first sale that MathWhiz makes to a given customer.

1. Consider using this bare-bones contract template.
2. Don't necessarily include all the bells and whistles of the Lighthouse referral provisions — remember, MathWhiz wants a simple agreement that ideally can get signed without the other side getting its lawyer(s) involved.
3. Consider putting key business details in a schedule at the beginning (as well as the signature blocks), along the lines of the Stanford-Tesla lease.

Here are some comments I've made in past semesters when grading students' referral agreements.

1. This Clause? At the beginning, "This Clause applies …" isn't appropriate — it should be: "This Agreement …." The Lighthouse referral provisions are designed to be incorporated by reference; if you're going to copy and paste its language into an actual contract, then the language needs to be adjusted accordingly.
2. Gigunda: The assignment facts didn't say Gigunda would be a referrer, nor to plug in Gigunda's name.
3. "Resident": In a contract, an organization typically isn't referred to as being a "resident" of a particular county or state; a corporation or LLC is organized under the laws of a particular state, and it has its principal place of business in a specified city, county, etc.
4. "Person" generally means an individual or organization, so you wouldn't say "person or organization" (emphasis added.) Use "individual or organization instead if that's what you need.
5. Running header: Good idea — but be sure that it's hand-typed in, not an automatically-updated Word field.
6. Recordkeeping: If you want to include a recordkeeping requirement: Until such time (if any) as the Lighthouse provisions become more widely recognized and adopted, it's better either:
   • to leave out a recordkeeping requirement, or
   • to include a bare-bones, standalone requirement in the body of the agreement, without referencing the Lighthouse as an external standard. (The same is true for all Lighthouse provisions.)
7. Numbering: For "list" subdivision paragraphs that are all part of the same grammatical sentence, it's better to use (1), (2), etc. — numbering such as "3.2.1" and "(a), (b)," etc., should be for complete sentences.
8. Numbering: For internal subdivisions in a sentence (without separate paragraphs), I often go with (i), (ii), etc.
9. Numbering: If you don't have a subdivision (b), then you don't want to use "(a)"; you could just make it a standalone, unnumbered, grammatical paragraph. (The same is true for other numbering.)
10. Capitalization: Be consistent about capitalizing "Company" and similar defined terms; see the readings about defined terms for cases where inconsistency in capitalization has caused problems.
11. Paragraphing: The Lighthouse language is heavily paragraphed for easy skimming — but that might not be the best approach for an actual contract provision.
12. Evergreen term: Some students had a "termination" section that included both a 30-day termination-at-will clause AND a 30-day period to opt out of an automatic evergreen term extension — but that means the opt-out period is redundant. COMMENT: It's usually better to keep an opt-out provision together with the "evergreen" provision so that in the future they can be "transplanted" together into another contract.
13. Confidentiality: "All" reasonable measures (equivalent to "best efforts") is more than you'd want to commit MathWhiz to doing for the other party's information — if anything, you'd want to limit the confidentiality commitment to just the referring party's being obligated.
14. Termination for breach after 30 days might be too long a cure period; from MathWhiz's perspective, it might make more sense to just be silent and count on the law.
15. Performance requirements: These are something you might not put into a garden-variety referral agreement, as opposed to a reseller agreement — especially if there's a short-notice "termination at will" provision. (If
16. Reduced commission percentage: One student usefully stated that the first referred sale would get 5%, the second referred sale would get 2.5%, and then nothing after that. This is good, because it gives the referring company an incentive to go and find more customers to refer, instead of just sitting back and collecting commissions on previous referrals.
17. Entire-agreement & amendments-in-writing provisions: Almost any contract should have an entire-agreement provision, and probably an amendments-in-writing provision as well.
18. Escalation? For any kind of agreement that will extend for a period of time, I like to include an internal-escalation clause for disputes.
19. Governing law: In many low-footprint commercial agreements (such as a low-dollar referral agreement), you can probably get away without a governing-law clause — and including such a clause could amount to poking the bear.
20. Signatures: For a reusable contract form, it's best to leave the client's signature block "blank" (as with the signature block for the other party). That's because, for any given deal, we don't know who will be signing on behalf of the client.
21. Don't say, "Associate agrees to refer potential clients to Company within the Referral Term." The business deal is very likely to be something like, "MathWhiz will pay a commission if Associate refers …."
22. Don't say, "This Agreement applies if and when Company is to pay Associate commissions on Company sales during a specified time period …." The agreement that's being drafted IS the "if and when …."
23. CLAUSE: "Both Parties represent that they …." COMMENT: This would be better phrased as "Each Party represents that it …." That way, you reduce the (slim) possibility of someone making a (questionable) argument about joint statements or some such.
24. CLAUSE: "Both parties agree that the Referrer is an independent contractor …." COMMENT: Better to say "Each party agrees …."
25. When the signature blocks are in front, it's better to say at the end, "END OF DOCUMENT" (centered, maybe italicized), to reduce the chance that someone might try to surreptitiously slip in extra text that wasn't agreed to.
26. The introductory paragraph, "Upon the Effective Date of this Agreement, Referring Party may refer customers to MathWhiz" could be ambiguous — is it ONLY upon that date?
27. DON'T: "This section withstands termination of this Agreement." BETTER: "This section will survive termination of this Agreement." (Termination is in the future, and "survive" is a term of art that lawyers and judges know well.)
28. If you name the "Associate" in the top table, you could just have the signature block say "AGREED: Associate" instead of "AGREED: XYZ" — it'd be one less place to have to make the change.
29. DON'T: "This Agreement applies when: Company is to pay Associate commissions on Company sales …." COMMENT: This implies that some other agreement might be required for MathWhiz to be obligated to pay commissions, but this Agreement IS the agreement to pay commissions.
30. CLAUSE: "If internal escalation does not result in settlement, either party may submit the dispute for mediation in accordance with American Arbitration Association rules." QUESTION: Must the other party participate in the mediation?
31. When definitions are at the end, it wouldn't hurt to say so at the beginning (maybe in bold?).
32. CLAUSE: "This Agreement will be governed by and construed according to the laws of the State of Texas." COMMENT: Do you want it to be the internal laws of Texas?
33. DON'T: "At the same time as this Agreement is being signed, MathWhiz and Referrer are entering into a Referral Agreement (“Agreement”)." COMMENT: This is the Referral Agreement.
34. DON'T: Refer to the referring party as "Customer."
35. CLAUSE: "To execute a valid Referral and be eligible to receive Referral Commission, Customer [sic] must fill out and send MathWhiz the Customer Referral Form, attached hereto as Exhibit A." COMMENT: Saying "Customer must" isn't the best idea — what if it doesn't happen? (R.O.O.F.!) Better to encourage it but not make it mandatory.
36. "Prospect" is better than "Referred Party" (which could be confused with "Referrer").
37. 38. DON'T: Say that this is between MathWhiz and Gigunda — the instructions are to draft a fill-in form.
38. Student's signature block: "AGREED: [Associate's name]." BETTER: "AGREED: [ASSOCIATE'S NAME].
39. COMMENT: ALL CAPS is better for fill-in spots because they're more eye-catching for drafters.
40. COMMENT: I can see why a drafter wouldn't include an audits provision for a referral agreement. But if this were a major revenue-producing agreement for the other party, MathWhiz likely would want to include an audits provision just to forestall having the other party propose a really-onerous one.
41. I docked one point for not updating the running footer in the document.
42. TEXT: "Associate will refer Prospective Customers …." COMMENT: That might not be appropriate: Normally, referral agreements don't require referrals, they just say, in effect, if you do refer a customer, then I'll pay you a commission.
43. TEXT: "Associate's duties under this Agreement are limited exclusively to locating Prospective Customers and notifying Company." COMMENT: This limitation on "duties" doesn't preclude Associate from doing other things if it wants — and MathWhiz might well want to impose such limitations.
44. TEXT: "Any expenses incurred by Associate in connection with carrying out its duties under this Agreement will be paid by Associate."
45. COMMENT: This is passive voice — better to say, "Associate will pay …" or "Associate is responsible for …." (This isn't one of those cases where it doesn't matter who actually does the action.)
46. TEXT: "Company will have no obligation to reimburse Associate for any expenses incurred …." BETTER: "Company need not reimburse Associate …."
47. TEXT: "Non-exclusivity: During the Term of this Agreement Company may engage any other firms and/or individuals to act as an Associate with respect to the sale of any of Company’s goods or services." COMMENT: Better to just say "This Agreement is non-exclusive as to each party," because Company's right to engage others won't expire with the Term. (Here, it doesn't matter, but in other contexts, it might.)
48. TEXT: "All non-public, confidential, or proprietary information of Company or Associate …." COMMENT: MathWhiz isn't going to want to commit to confidentiality obligations for Associate's information — there won't be any disclosed (in all likelihood), and MW won't want to open that door.