Building a Legal Moat for Your SEO Castle

Jun 24th

About a month ago a year old case of an SEO firm being sued by it's client resurfaced via a tweet from Matt Cutts.

I'd like to add something to this conversation that will be helpful for you as a service provider seeking to avoid that really, really scary issue.

Some quick background information if I may? No specifics are allowed but I've been a party, on both sides, to actual litigation pertaining to SEO contracts (not services rendered, just contractual issues with a third-party).

I've been the plaintiff and the defendant in cases involving contractual disputes and legal obligations so I, much to my dismay, speak from experience.

Suffice to say I'm not a lawyer, don't act on any of this advice without talking it over with your counsel so they can tailor it to your specific needs and state law.

Basic Protections

There are essentially 3 ways to legally protect yourself and/or your company objectively. I say objectively because anyone can sue you for anything and "service" is a subjective term as are "results" unless they are specifically spelled out in your contract.

Objectively speaking, the law gives you 3 broad arenas for protective measures:

  1. Contracts
  2. Entity Selection
  3. Insurance

Contracts

Get a real lawyer, do not use internet "templates" and do not modify any piece of the contract yourself. Make sure your attorney completely understands what you do. A good lawyer will listen to you. Heck, mine now knows who Matt Cutts is and where the Webmaster Guidelines are located and what "anchor text" is :)

Your contracts need to cover the following scenarios:

  • Client services
  • Vendor relationships
  • Employee/Contractor relationships

For standard client agreements you'll want to cover some basic areas:

  • Names of the legal entities partaking in the agreement
  • Duties and nature of services
  • Term and termination (who can cancel and when, what are the ramifications, etc)
  • Fees
  • No exclusive duty (a clause that says you can work with other clients and such)
  • Disclaimer, Limitation of Liability
  • Confidentiality
  • Notices (what is considered legal notice? a letter? certified mail? email?)
  • Governing law
  • Attorney's fees (if you need to enforce the contract make sure you can also collect fees)
  • Relationship of Parties (spell out the relationship; independent entities? partners? joint ventures? spell out exactly what you are and what you are not
  • Scope of Work
  • Signatures (you should sign as you are in your entity; member, president, CEO, etc)

Some important notes are needed to discussion a couple of core areas of the contract:

For Governing law go with your home state if possible. Ideally, I try to get an arbitration clause in there rather than state law so in case there is a dispute it goes to a much less expensive form of resolution.

However, you can make an argument that if your contract is signed with your home state as governing law and your language is strong you are better off doing that instead of arbitration where one person makes a decision and no appeal is available.

For Limit of Liability go broad, real broad. You want to spell out that organic search (or just about any service) is not guaranteed to produce results, no promises were made, Google does not fully publish the algorithim thus you can't be held liable for XYZ that happens.

Also, if your client is asking you to do things against webmaster guidelines, and you decide to do them, you NEED to get that documented. Have them email it to you, record the call, something. Here is the liability clause in my contract:

Client agrees and acknowledges that the internet is an organic, constantly shifting entity, and that Client’s ranking and/or performance in a search engine may change for many reasons and be affected by many factors, including but not limited to any actual or alleged non-compliance by Provider to guidelines set forth by Google related to search engine optimization.

Client agrees that no representation, express or implied, and no warranty or guaranty is provided by Provider with respect to the services to be provided by Provider under this Agreement. Provider’s services may be in the form of rendering consultation which Client may or may not choose to act on. To the maximum extent permitted by law, Client agrees to limit the liability of Provider and its officers, owners, agents, and employees to the sum of Provider’s fees actually received from Client.

This limitation will apply regardless of the cause of action or legal theory pled or asserted. In no event shall Provider be liable for any special, incidental, indirect, or consequential damages arising from or related to this Agreement or the Project. Client agrees, as a material inducement for Provider to enter into this Agreement that the success and/or profitability of Client’s business depends on a variety of factors and conditions beyond the control of Provider and the scope of this Agreement. Provider makes no representations or warranties of any kind regarding the success and/or profitability of Client’s business, or lack thereof, and Provider will not be liable in any manner respecting the same.

Client agrees to indemnify and hold harmless Provider and its officers, owners, agents, and employees from and against any damages, claims, awards, and reasonable legal fees and costs arising from or related to any services provided by Provider, excepting only those directly arising from Provider’s gross negligence or willful misconduct.

For vendor and independent contractor agreements you'll want most of the aforementioned clauses (especially the relationship of parties) in addition to a few more things (for employee stuff, get with your lawyer because states are quite different and a lot of us use remote workers in different states)

  1. Non-Competition and non-interference
  2. Non-Solicitation and non-contact

These clauses essentially prohibit the pursuit of your clientele and employees by a vendor/contractor for a specified period of time.

Legal Entity

Don't be a sole proprietor, ever. If you're a smaller shop you might consider being a single member LLC (just you), an LLC (you and employees), or an S Corp. If you're a larger operation you might want to incorporate and go Inc.

The benefits of the LLC set up are:

  • Your personal assets are generally untouchable (providing you are not co-mingling funds in a bank account)
  • Very easy to administer compared to other options
  • Your liability is limited to company assets (pro tip: clear out your business bank account each month minus some operating margin, move it to personal savings)

Benefits of an S Corp are:

  • Same protections as LLC
  • You save a fair amount on self employment taxes (more below)

With the S Corp there's more paperwork and filings but if you are earning a fair bit of money it may be worth it to you. Here's a good article breaking this all down, and a excerpt:

"If you operate your business as a sole proprietorship or partnership/LLC, you will pay roughly 15.3% in self-employment taxes on your $100,000 of profits. The calculations get a little tricky if you want to be really super-precise but you can think about self-employment tax as roughly a 15% tax. So 15% on $100,000 equals $15,000. Roughly."

"With an S corporation, you split your business profits into two categories: "shareholder wages" and "distributive share." Only the "shareholder wages" get subjected to the 15.3% tax. The leftover "distributive share" is not subject to 15.3% tax."

Be careful here (and I'm not a CPA so don't do anything without consulting with your accountant) not to be absurd with your wages. So, if your net income is 1 million don't take 25k in wages and 975k as a distribution.

Some final thoughts on entities:

  • Most of you will probably fall into the LLC/S S Corp category, get with your attorney and accountant
  • Keep everything separate because if you don't (credit cards, bank accounts, etc) your personal assets might be at risk due to the "piercing of the corporate veil"

Insurance

As you would imagine, insurance policies are few and far between for our industry. You can get general liability for your office, workers comp for your employees, disability for yourself, and so on. However, what you might want to look into is a professional liability policy.

You'll probably end up looking at a miscellaneous one like the one here (marketing consultant?) offered by Travelers. You'll probably have to educate your agent on your business practices to ensure proper coverage.

This might be worth it just due to the legal protection clause; meaning they will pay for a lawyer to defend you. Having the proper entity classification might protect your assets but paying lawyers is expensive to defend even frivolous lawsuits.

Record Keeping

This is a bit out of the "contract" topic but good record keeping is essential. If you use a project management and/or a CRM system you really should make sure you can export when you need it.

Many online CRM applications and project management applications have limited export capabilities especially when it comes to export comments and notes on things like tasks and records. Most have an API that you can have a developer custom code to export your stuff. I'd look into this as well.

Final Thoughts

Get with your attorney and CPA to get your specific situations up to legal snuff if you haven't already. Don't act on my advice as I'm not a lawyer nor a CPA. Contracts and agreements are not fun to negotiate and can be even harder when you work with people you generally trust.

However, when it comes to business dealings and contracts I would save my trust for my lawyer :)

Published: June 24, 2014

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Comments

June 26, 2014 - 10:33pm

Great article. One thing to note, an LLC can get the exact same S-Corp tax treatment as a corporation can by filing Form 2553, the same form that must be filed once you form a corporation if you want it to be treated as an S-Corp. This is available whether your entity is an LLC or a corporation.

Generally there are two times a small marketing services or software / SaaS company might want a corporation and not an LLC (and remain a C-Corp by not electing to be treated as an S-Corp): if you plan to raise outside investment, especially from professional investors like VC's, and if you plan to compensate employees with equity (stock options or restricted stock). You can take investment into an LLC as well, but professional investors typically won't do it, and if you're offering to many different parties it can become more complicated than if you were a corporation. Likewise, compensating employees with equity is much more difficult to do if you are an LLC. There are other factors that go into the decision of entity selection and tax treatment, but these are a couple of the more common ones.

Regarding independent contractor agreements, along with those already listed, it is also a good idea to include work-for-hire and assignment clauses if they're going to be doing creatives and other design work or writing code. Depending on the work being done on behalf of the client, these also might make sense for the services agreement.

Last bit: note that if you or your employee or independent contractor are in California, except in extremely limited circumstances, non-competes are invalid as a matter of law.

Disclaimer: I am an attorney but not yours. This is not legal advice. Every situation is different and you should consult counsel about yours.

June 28, 2014 - 9:33am

thanks for the great feedback :)

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