If you are thinking of rekindling your relationship with an old flame, you came to the wrong place. What “backdating” is about is signing an agreement today with the intent that it be effective as of a prior date.
Let’s suppose you hire a web designer to build a new website. Perhaps, you don’t know exactly what kind of website you need or how much it will cost. You meet with your designer and toss around some ideas. You ask for a proposal. There are several versions, lots of back and forth conversation. You get really excited about how great your website is going to look. Everyone wants to get started immediately.
Somewhere along the way, you realize there is no contract. You remember that your lawyer once told you that without a contract you do not legally own your website. Note to self – get contract in writing. Not today, definitely next week. One week turns into two weeks, two weeks into a month or two months. Finally you prepare the contract and your designer agrees to sign it.
But how do you date the contract? Should it be dated when the contract is signed or back when you first started working together? Why does it matter?
The reason contract dates are important is because that is when your legal rights begin. For example, if the contract is dated today, who owns that portion of the website code that was developed prior to signing the agreement? The designer.
So, you paid the designer in full but you don’t own the website? Yes, that’s the problem and that’s when backdating comes in. Ideally, the agreement would be signed when you first started working together, but that didn’t happen. Now, two months later you prepared a contract that is ready to be signed if you can just figure out the right date.
In general, “backdating” should be avoided, whether we are talking contracts or old flames. There are some exceptions to the former; none (based on my experience) to the latter. However, there is no right answer for all situations. I suggest you have three options:
The easiest way is to make the contract happen on the date that it is signed. Typically, this is done by stating at the beginning of the contract that “This Agreement is made and entered into on [TODAY’S DATE]”. Or when the parties all sign within a few days of each other (but not exactly on the same date), you could use “This Agreement is dated as of [EFFECTIVE DATE].” However, if there are intellectual property rights, confidentiality obligations or other pre-existing obligations, you may have a problem because any rights arising prior to signing the contract would be lost.
If you can’t make it, fake it. This is a great solution. All you have to do is write in a prior date and sign it. There it is, the document is signed and delivered as if it were signed and delivered weeks ago, months ago, even years ago. What’s the harm? Who will know the difference? That’s the problem. You don’t know until you get caught. It’s harder than you think to put in a prior date and have it look authentic. Yes, I know businesses do it all the time but that doesn’t mean it is good business practice; and in many cases it may be considered fraud or misrepresentation. Not only that, it is easy to make mistakes. For example, the first payment is due upon signing two months ago…except the check was never written or deposited in a bank. In most agreements, using a prior date to make it look like it was signed earlier is the wrong way to go. Don’t do it.
A better solution is to disclose the date that the contract was actually signed. You could simply state that “This Agreement is executed on [TODAY’S DATE] with the intent that it be effective as of [PRIOR DATE]”. This is full disclosure. So, there is no intent to defraud or mislead or misrepresent the true nature of the agreement. The problem is that it may not work in every situation. For example, let’s suppose there is a confidentiality provision in the agreement or some other obligation that was supposed to happen prior to signing. How do you hold someone responsible for doing something before they knew it was an obligation?
Sometimes, the best solution is just to fix the problem. Read each paragraph and consider what it means if you sign the agreement today. For example, if the agreement requires the assignment of intellectual property rights (past, present and future), why not just use “all intellectual property rights relating to the company (or its website) are here by assigned to the company.” The fix may be different for different agreements. If it is a promissory note, compute the accrued interest prior to signing the note and include it in the principal amount of the note. If it is a non-disclosure agreement, specifically state that all information disclosed prior to the date of the agreement will be considered confidential. Almost anything can be fixed, one way or another, without going to jail.
As the Contracts Guru for your business, what should you do? When is backdating okay?
Roger Glovsky is a business lawyer who believes legal documents should be accessible, affordable and comprehensible. As author of ContractsGuru.com, Roger coaches business owners how to draft and negotiate their own contracts through workshops, teleseminars and online programs. As founder of LEXpertise.com, he plans to make it easier for business owners to find the right legal documents when they need them. Originally from Massachusetts, he now lives in Boulder, Colorado.