12 Contract Red Flags That Should Stop You From Signing

I've spent more than 20 years negotiating contracts at numerous marketing and advertising agencies, as well as for entertainment companies such as DreamWorks, Warner Bros., Disney, NBCUniversal, Paramount, SPE, Netflix, Microsoft, Activision, and countless other entertainment and gaming companies. This is one of the most common things I saw on both the vendor side and the client side: someone signed a contract without reading it carefully, and it cost them. A lot.

Not because they were careless. Because the contract was written by crafty lawyers for the other side, and nobody told them what to look for.

I sincerely hope this post helps shed some light on this all-too-common problem. Here are 12 red flags that should make you pause before you sign anything.

1. You cannot get a copy before signing

If someone hands you a contract and expects a signature on the spot, that is a problem. You have every right to take a contract with you, read it completely, and ask questions before you commit. Any party that refuses to let you do that is telling you something important about how they plan to treat you throughout the client-vendor relationship.

What to do? Ask for a copy in MS Word format by email. If they say no, you should probably walk away.

2. The payment terms are vague

A contract that says you will be paid "upon completion" or "in a timely manner" is not a payment term. It is a way for the other side to delay paying you indefinitely without technically breaking the contract.

Good payment terms include a specific dollar amount, a specific due date or trigger event (such as "full payment due within 14 days of receipt of invoice"), and a late payment penalty if they miss it.

If the contract you are looking at does not have all three of those things, the payment section needs to be fixed before you sign.

3. The scope of work is not defined

This is absolutely the number one source of disputes in freelance and service contracts. I cannot tell you how many times I ran into this issue. You think you are being hired to design a logo, or a website, or provide a set of services. The client may think that includes unlimited revisions, a brand guide, and social media assets unless you say otherwise in writing. It is often called "scope creep."

A contract without a detailed scope of work is an open invitation for scope creep, withheld payment, and a very unpleasant conversation in the near future.

Instead, make sure you have a very specific, comprehensive scope of work with a specific list of deliverables, a defined number of revision rounds, and language that says anything outside the scope requires a written change order. And provide them an example of a change order form.

4. There is an auto-renewal clause buried in the fine print

Auto-renewal clauses are legitimate. They are also frequently buried where people do not notice them. The contract renews automatically for another year unless you cancel 60 days before the end of the term. You might forget, and then you are locked in. This can be a problem if goods or services increase in cost over time.

Search the contract for the words "renew," "renewal," "automatically," and "evergreen." Read every sentence those words appear in very carefully. Make sure you know exactly when you need to act if you want out.

5. The termination clause only protects them

Some contracts let the other party cancel with 30 days notice for any reason. You can only cancel if they materially breach the agreement, and even then you have to give them 30 days to fix it first.

That is not a termination clause. That is a trap. Most people do not realize this.

A fair termination clause gives both sides roughly equal exit rights. If the contract you are reading lets them leave easily and makes it very hard for you to leave, flag it and ask for symmetry.

6. The indemnification clause is one-sided

Indemnification basically means if something goes wrong, you agree to cover the other side's legal costs and damages. Some level of indemnification is normal. A clause that makes you responsible for anything and everything, including things that are their fault, is not.

Look for the word "indemnify." Read what comes after it. If you are indemnifying them for their own negligence or misconduct, push back. There is absolutely no reason why all contracts cannot contain some form of mutual indemnification.

7. There is a non-compete that is too broad

Non-compete clauses can prevent you from working in your own field for years after a contract ends. Enforceability varies by state, but a non-compete you cannot live with is still a red flag even if it might not hold up in court.

Watch for non-competes that cover a very wide industry, a very long time period (anything over one year deserves scrutiny), or a very large geographic area. If you are a freelance designer and the contract says you cannot do design work for any company in the United States for two years after the engagement ends, that is not a standard clause. That is an overreach.

8. The intellectual property clause assigns everything you create (and have created)

Work-for-hire clauses that assign ownership of your deliverables to the client are normal and expected. What is not normal is a clause that assigns ownership of everything you create during the engagement period, including work you do on your own time with your own tools on unrelated projects.

Read the IP section carefully. It should assign ownership of the specific deliverables described in the scope of work. If it assigns ownership of anything you create while the contract is active, ask for it to be limited to work done specifically for this client.

9. The limitation of liability caps your recovery at almost nothing

Limitation of liability clauses cap how much money you can recover if the other side causes you harm. A common version limits their liability to the amount you paid them in the last 30 days. If they cause you significant damage, that might be almost nothing.

This is worth flagging and pushing back on, especially in contracts where the other party is providing a service you depend on. You do not necessarily need to eliminate the cap, but you should know it is there and what it means before you sign.

10. The governing law and dispute resolution clause is in a state you have never been to

Governing law clauses specify which state's laws apply to the contract and where disputes must be resolved. A contract that requires you to file any claim in a court in Delaware when you live in California and the other company is in Texas is designed to make it too expensive for you to ever sue them.

You want governing law to be your state, or at minimum a state where you could realistically pursue a claim. Arbitration clauses are worth reading carefully too. Mandatory arbitration in a distant location with the other side choosing the arbitrator is not a neutral dispute process.

11. The contract has blank spaces or placeholder text

This sounds obvious but it happens constantly. Dates left blank. Dollar amounts left as TBD. Names listed as [CLIENT NAME]. These are not minor formatting issues. A contract with blanks in it is incomplete, and an incomplete contract can be filled in however someone wants after you sign it.

Never sign a contract with any blank fields. Fill them in or draw a line through them and insist both sides initial the strikethrough before you put your name on anything.

12. You do not understand what you are agreeing to

This is the most important one. If you read a section of a contract and you genuinely do not know what it means, that is a red flag. And this may happen a lot. It is not because you are missing something. It is because a contract you do not understand is one you cannot enforce and one that can be enforced against you in ways you did not expect.

The good news is that you have options. You can ask the other party to explain the clause in plain English. You can consult an attorney. Or you can upload the contract to ReadMyContractNow and get a plain English breakdown of every section in less than 60 seconds, including which clauses carry the most risk. It is an incredibly helpful tool for anyone, including those who are used to seeing contracts.

The goal is not to find a reason to avoid signing. It is to sign with your eyes open, with the full confidence that you understand and agree to what the contract says.

What to do if you spot one of these red flags

First, do not panic and do not sign. Red flags are negotiating opportunities. Most parties expect some back-and-forth on contract terms, and asking for changes does not make you difficult. It makes you professional. In all my years reviewing and negotiating contracts on both the client and vendor side, not once has the other side refused to discuss changes, as long as those changes were not too far-reaching. Most freelancers and small business owners do not understand this, but they should. Everyone should expect contracts to take time to be reviewed, revised, and finalized.

Second, get clarity on anything you do not understand before the conversation about changes. You cannot negotiate what you cannot read or understand.

Third, if the other side refuses to discuss any of your concerns and pressures you to sign immediately, that pressure itself is a red flag and you may want to rethink the entire engagement. Not every client is a good client. Not every vendor is a good vendor. A legitimate counterparty gives you reasonable time to review a contract and make changes.

If you have a contract in front of you right now and you are not sure what it says, upload it here. The first analysis is absolutely free. No account setup required. You will have a plain English summary of every section in under a minute.

This article is for informational purposes only and does not constitute legal advice. For questions about your specific situation, consult a licensed attorney.

Written by John Posta, Founder, ReadMyContractNow