The University is prohibited by law from agreeing to certain contractual terms
because it is a State entity. If you find such prohibited terms in a contract
proposed by another party, it is advantageous to begin contract negotiations
by explaining these limitations to the other party. The key is to determine
early on in the negotiations whether a certain term might be a deal-breaker
before you put in too much time and effort in negotiating other terms.
Below are examples of the types of clauses or provisions that are prohibited
and legal language that you can use in negotiating these provisions out of
contracts. If you have questions or are unsure about how to use the information
below, contact the University Attorney's office at 687-2553 or at askelso@email.uncc.edu.
Acceleration of Payment
Arbitration
Assignment of Rights
Governing Law
Indemnity; Hold Harmless; Assumption of Liability
Limitation of Liability
Liquidated Damages
Material Breach; Irreparable Harm
Statute of Limitations
Non-Compete Clauses
ACCELERATION OF PAYMENT
In negotiating an acceleration clause out of the contract, you may
use the following language to explain why the University cannot agree to such a
provision:
"Acceleration clauses implicate the State's
obligation to operate within a fixed budget, forcing the University, as a State
agency, to make payments for which no money has been appropriated or budgeted
and are not due in a particular fiscal year. Therefore, the University may not
enter into an acceleration clause."
ARBITRATION
If the Contract requires binding arbitration or any mandatory dispute
resolution other than legal action in North Carolina courts, either:
1. Remove the clause; or
2. Remove the clause and add a clause requiring mediation in
North Carolina, such as:
"Any dispute arising under this Agreement may be
settled by mediation in the State of North Carolina in accord with such
procedures as may be acceptable to the parties."
In negotiating the removal of an arbitration clause, you may use the
following language to explain the University's limitations:
"Any contract between the University and another
party includes by implication the existing law of the State of North Carolina.
The waiver of sovereign immunity therefore is limited to the waiver of immunity
for contracts that include the law of North Carolina. To preserve its sovereign
immunity the University may not agree to waive provisions of North Carolina
law. A clause requiring binding arbitration or any mandatory dispute resolution
other than legal action in North Carolina courts change the law under which
sovereign immunity for breach of contract was waived. Therefore, the
University, as a State agency, cannot agree to binding arbitration or any mandatory
dispute resolution other than legal action in North Carolina courts."
ASSIGNMENT OF RIGHTS
If the Contract allows the other party to assign its right to payment
to a third party without subjecting the third party to all the defenses and
claims the University would have against the original contracting party, modify
the Contract by removing the assignment language and inserting the following
clause:
"This Contract is not assignable by either
party."
In negotiating the removal of an assignment clause, you may use the
following language to explain the University's limitations:
"An assignment clause constitutes a waiver of
defenses and recourse and implicates the exclusive emoluments clause because
the assignee receives State funds without providing public service. It might
also change the assumption that the State will always have its regular contract
defenses available to it. Therefore, the University, as a State agency, cannot
agree to an assignment clause."
GOVERNING LAW
If the Contract contains clauses that would make it subject to either the
substantive law or the jurisdiction of a state other than North Carolina,
either:
1. Remove the clause; or
2. Remove the clause and add the a clause
making the Contract subject to the law and jurisdiction of the State of North
Carolina, such as:
"This Agreement shall be construed, governed, and
enforced by and in accordance with the internal laws of the State of North
Carolina. Each party expressly consents to the jurisdiction of the Superior
Court of the State of North Carolina should litigation arise between the
parties."
In negotiating the removal or change of a choice of law clause, you
may use the following language to explain the University's limitations:
"Choice
of law/forum clauses requiring the University to consent
to litigation in a jurisdiction other than North Carolina
are prohibited under N.C.
Gen. Stat. 22B-3. Clauses permitting suit in another
state implicate the State's sovereign immunity and the
Attorney General's authority to represent the State
agency. Therefore, the University, as a State agency,
cannot agree to a clause subjecting the University to
either the substantive law or the jurisdiction of another
state."
INDEMNITY; HOLD HARMLESS; ASSUMPTION OF LIABILITY
If you find in the contract an indemnity, assumption of risk,
or hold harmless clause or a clause subjecting the University to
liability beyond the limits of the Tort Claims Act (including attorneys
fees), the clause must be removed. In negotiating the removal of such
clauses, you may use the following language to explain the University's
limitations:
"North
Carolina laws and regulations provide that contract
provisions such as limitations on the other party’s
liability, waivers of the limits of the University's
liability, and hold harmless or indemnification clauses
in favor of the other party are contrary to public policy
and are therefore void. Specifically, under the North
Carolina Tort Claims Act (N.C. Gen. Stat. 143-291 et
seq.) a State entity cannot waive the State's sovereign
immunity and assume liability for actions not covered
by the Tort Claims Act, in a forum other than the Industrial
Commission, for an amount greater than allowed under
the Tort Claims Act ($1,000,000), or for liabilities
different from the liabilities allowed under the Tort
Claims Act (such as attorney's fees). Agreeing to such
terms in violation of the Tort Claims Act would render
that agreement void. A December 12, 1990 advisory letter
from the North Carolina Attorney General to David N.
Edwards, Jr., UNC General Administration, supports this
determination."
If you are unable to negotiate such a clause out of the contract altogether,
an alternative (although not favored) approach is to insert the following
language at the end of each sentence providing that the University will
take assumption of risk, have responsibility, hold harmless,
save harmless, or indemnify, or a clause subjecting the
University to liability beyond the limits of the Tort Claims Act (including
attorneys fees):
" . . . only in the manner and to the extent
provided by North Carolina law."
LIMITATION OF LIABILITY
In negotiating the removal of clause limiting the other party's liability,
you may use the following language to explain the University's limitations:
"Limitations on the other party's liability for
nonperformance implicate the Constitutional prohibition on exclusive
emoluments. N.C. Constitution Art. I, Sec. 32. It also implicates the Attorney
General's obligation to exercise duties regarding civil litigation. N.C. Gen.
Stat. 114-6. Therefore, the University, as a State agency, cannot agree to
clause limiting the other party's liability."
LIQUIDATED DAMAGES
In negotiating the removal of a clause providing for liquidated damages
or cancellation fees to be paid by the University, you may use the
following language to explain the University's limitations:
"Any contract between the University and another
party includes by implication the existing law of the State of North Carolina.
The waiver of sovereign immunity therefore is limited to the waiver of immunity
for contracts that include the law of North Carolina. To preserve its sovereign
immunity the University may not agree to waive provisions of North Carolina
law. A clause requiring liquidated damages or cancellation fees to be paid by
the University changes the law under which sovereign immunity for breach of
contract was waived. Therefore, the University, as a State agency, cannot agree
to a clause providing for liquidated damages or cancellation fees to be paid by
the University."
MATERIAL BREACH; IRREPERABLE HARM
In negotiating the removal of a clause providing that breach would cause
irreparable harm and justify injunctive action, you may use the following
language to explain the University's limitations:
"Any contract between the University and another
party includes by implication the existing law of the State of North Carolina.
The waiver of sovereign immunity therefore is limited to the waiver of immunity
for contracts that include the law of North Carolina. To preserve its sovereign
immunity the University may not agree to waive provisions of North Carolina
law. A clause requiring that breach would cause irreparable harm and justify
injunctive action changes the law under which sovereign immunity for breach of
contract was waived. Therefore, the University, as a State agency, cannot agree
to a clause providing that breach would cause irreparable harm and justify
injunctive action."
STATUTE OF LIMITATIONS
In negotiating the removal of a clause providing less than three years
for the University to file a legal claim or sue for breach of contract, you
may use the following language to explain the University's limitations:
"Any contract between the University and another
party includes by implication the existing law of the State of North Carolina.
The waiver of sovereign immunity therefore is limited to the waiver of immunity
for contracts that include the law of North Carolina. To preserve its sovereign
immunity the University may not agree to waive provisions of North Carolina
law. A clause requiring less than three years for the University to file a
legal claim changes the law under which sovereign immunity for breach of contract
was waived. Therefore, the University, as a State agency, cannot agree to a
clause providing less than the statutory three years for the University to file
a legal claim or sue for breach of contract."
NON-COMPETE CLAUSES
If the Contract includes a “non-compete”
clause, which requires, for instance, that the University may not contract
with a similar service provider for a specified length of time after the
expiration or termination of the Contract, you may use the following language
in a letter to explain the University's limitations:
"State agencies are bound to comply with competitive bidding
requirements under State law. Therefore, if the University determines that it
needs a particular service, it is required to competitively bid for that service,
and cannot agree to a non-compete clause that prohibits such bidding."
