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Vendor Contracts – Beware of These Five Pitfalls in Employee Benefits Agreements

Jeff Griffin

Anyone who has ever signed up for cellular phone service with a mobile phone carrier knows what a burdensome service agreement looks like. It's pages and pages of terms and conditions, often delivered by an anxious salesperson consumed with an expectation that the customer desiring service will sign the carrier agreement on the spot.

While consumer law often provides protections to the little guy when big corporations require the signing of contacts like this, the courts aren't nearly as understanding when it comes to agreements between business parties. In many of these cases, the courts expect business-to-business agreements to be fully enforced.

This is particularly unfortunate given what's occurred over the last decade in the employer-sponsored group benefits space. These agreements have morphed from straightforward, comprehendible documents to verbose and cryptic agreements that shift virtually all risk to the plan sponsor (e.g., the employer) while relieving the vendor from almost all meaningful liability.

Plan sponsors have seen some of this behavior abate in recent years, fueled by their successful push back against commercially unreasonable contract provisions. Furthermore, the DOL's Fiduciary Rule, which went into effect July 1, 2019, has also helped neutralize some of these more unreasonable provisions.

Nevertheless, employers should resist the temptation to view the provisions of their employee benefits vendor contracts as minor details. The wrong provisions could easily bankrupt a small to medium-size business or cripple the growth of a larger one.

Although every single word of every vendor contract needs to be reviewed carefully by not only you and your employee benefits broker, but also qualified legal counsel, here is a list of five common provisions that require special attention.

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Topics: Compliance, Legal Review

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