Ambiguity in contracts is one of the leading reasons business owners get into legal trouble with partners, shareholders, employees and clients. All your business contracts should be clear. You and the other signatory should be on the same page about all the terms in the agreement, as it can be problematic when a misunderstanding is discovered after the contract is signed.
Here is how you can avoid ambiguity in your contracts:
Have a definitions clause
A definitions clause in a contract provides in-depth definitions of key terms used throughout the agreement. For instance, in your employment contract, you can define employer, employee, full-time, pay rate and liability.
This clause is usually included at the beginning of the agreement. This way, a signatory can know what a term means every time they come across it in the agreement.
It’s easier to organize the definition clause in alphabetic order.
Avoid words/statements that can have two interpretations
Your business contracts should not have words or statements that can have two interpretations. For example, stating that an employee should put in their best efforts is ambiguous. While you may mean using the highest level of diligence and resources possible to complete tasks, they may understand it as sincere attempts within certain limits. If you argue the employee didn’t perform as expected, they may claim they did their best.
Other words to avoid in your agreements are reasonable efforts, as soon as possible, prompt material, standard quality, satisfactory, negligent and substantial.
Use simple language
Although contracts are legal documents, they don’t need to be full of legalese. Using simple language can save you from misunderstandings.
Ambiguity in your business agreements can negatively impact your business. Obtain adequate information when drafting contracts to avoid this and other costly mistakes.