When should you add Extra Privacy Clauses to your Contract?

You may want to add extra privacy protections in some cases. 

• • Your Client requires extra privacy assurances and you're willing to give them. 
  • You want to voluntarily give greater privacy assurances to your Client. 

Privacy laws in Canada allow personal information to be transferred outside of Canada, but only if the individual consents to it. So, many contracts will not allow personal information to be moved outside of Canada without the client's permission.

An audit is a formal review of the consultant's privacy practices. It means the client can ask for records and information about how personal information has been collected, used, and shared by the consultant. Using this information, the client can verify whether the consultant is following privacy laws and the privacy requirements of the contract. 

Since you're the consultant, we make the audit right more reasonable:

• • The client can only do an audit once per year.
  • The client must give you reasonable notice of not less than 30 days that they will be doing an audit.
  • Anyone participating in the audit must agree to confidentiality. 
  • The client must share the results of the audit with you and give you a chance to fix any problems. 
  • The client has to give you an audit plan and limit the scope to the minimum needed so your business is not interrupted. 

Limitations on Liability Explained

Choosing these options protect you by allowing you to make the widest range of claims against the Consultant possible, if the Consultant makes a serious enough error. This is called "uncapped" or "unlimited" liability. 

Sometimes though, your Consultant will not agree to the contact and won't do the work without limiting their liability in some ways. 

If that is the case for you, you can unselect these options and we'll help you understand how to write in some Consultant protections, while making things as balanced as possible for you.

Indirect Liability Explained

Indirect losses, also known as "consequential" losses, refer to damages or losses that do not result directly from a party but happen as a consequence of the party's actions. Think of these as the ripple effect losses.

Example

A Consultant is hired by a Client to improve its production processes and increase efficiency. The Consultant recommends a new software system to manage inventory. The Client implements the software based on the Consultant's advice.

Primary (Direct) Loss

After implementation, the software system malfunctions due to a bug, causing production to halt for several days. The cost to fix the software and get the production running again is a primary loss.

Secondary (Indirect or "Consequential) Losses

• • Lost profits: During the downtime caused by the software malfunction, the Client is unable to produce and sell its products. The revenue lost during this period is an indirect loss.
  • Additional Expenses: To lessen the impact of the production delays, the Client may need to pay overtime to employees to catch up on delayed orders once the system is fixed. These additional labor costs are indirect losses.
  • Loss of Business Opportunities: If the production delay causes the Client to miss a critical delivery deadline for a major customer, the client may cancel the order or decide not to place future orders. The lost business from this Client is an indirect loss.
  • Reputational Damage: The production issues and delays may harm the Client's reputation, leading to a loss of trust. This reputational damage can result in decreased sales and long-term financial impacts, which are considered indirect losses.

Client perspective (keep the box checked)

As the Client, you want to have the ability to sue or claim against the Consultant  these sorts of indirect, ripple effect type of losses.

Contractor perspective (uncheck the box)

Indirect losses can be hard to predict and the dollar amount of damage can be even harder to know ahead of time. If the Consultant takes on too much potential liability, they may need to raise their fees or just not take on the work. That's why contracts may say that the Consultant will not be liable for indirect losses.

Cap on Liability Explained

A cap on liability limits the amount of money the consultant can be held responsible for if something goes wrong. This cap sets a maximum amount that the consultant would have to pay in case of damages, losses, or other liabilities arising from their services.

Client Perspective

You would rather not have a cap on the Consultant's liability so you're free to claim as much as is appropriate against the Consultant without any limits.

Contractor Perspective

The main purpose of a cap on liability is to protect the Consultant from potentially unlimited financial responsibility, making it easier for them to manage risks. Given the fees involved, the Consultant may not be willing to do the work without knowing what their maximum liability could be. 

How It Works:

The cap on liability is usually a fixed dollar amount or a percentage of the total fees paid for the consultant's services.

For example, the agreement might state that the Consultant's liability is capped at $100,000 or the total fees paid under the contract, whichever is less. 

If the Consultant's actions or advice result in damages or losses that exceed the cap, the Consultant is only responsible for paying up to the capped amount, and no more.

Tip: if you need to include a cap on liability to make your Consultant willing to sign the agreement, consider setting the limit to be equal to the Consultant's liability insurance coverage. This will usually make the Consultant comfortable with a higher cap on liability because they are covered by their insurance.