When you collaborate with another individual or company, there's always a risk that the other party will cut you out of the deal. A noncircumvention agreement may be able to protect your interests, although it also has some drawbacks.
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by Edward A. Haman, Esq.
Edward A. Haman is a freelance writer, who is the author of numerous self-help legal books. He has practiced law in H...
Updated on: April 19, 2024 · 3 min read
If you are collaborating in a business venture with one or more other businesses or individuals, you won't want another party to go behind your back and cut you out of the deal. To protect your interests, you may want to consider a noncircumvention agreement.
Suppose you have a computer repair business and Bill has a software development business. You become aware that many of your clients have a need for software that is tailored to their business and is not commercially available. You and Bill agree to cooperate in a joint venture that uses your customer contacts and Bill's software development abilities to meet the needs of your customers. Once Bill has your customer list, you wouldn't want him to cut you out of the process and just deal directly with your customers. In such a situation, a noncircumvention agreement may help protect you.
Whether you are hiring employees or independent contractors or are engaging in business transactions or joint ventures with other companies, you need to be aware of these three types of agreements:
A noncircumvention agreement can be a stand-alone document or part of a comprehensive document that also includes nondisclosure and noncompete provisions. These types of agreements can either be a unilateral agreement, meaning that they only restrict one of the parties, or a mutual agreement, meaning that they restrict both parties. With a mutual noncircumvention agreement, both parties can be restricted from entering into any similar type of arrangement with outsiders.
A party being protected by a noncircumvention agreement benefits by receiving legally binding assurance that their business secrets or their position as an intermediary such as a broker will not be compromised. If the agreement is violated, the protected party can file a lawsuit against the other party and may be able to obtain a court injunction or monetary damages.
The benefit to the party being restricted by a noncircumvention agreement is not so direct. The benefit is merely the business venture itself. Without the noncircumvention agreement, the party enforcing the restriction may not be willing to proceed with the deal.
The disadvantages of a noncircumvention agreement fall mostly upon the party being restricted. These can include significant inhibition of future business activities if the time period of the agreement's restriction is excessively long or if the agreement covers business activities over a wide geographical area. An agreement that restricts activities over a wide geographical area can also subject the restricted party to lawsuits anywhere in that area.
Since most noncircumvention agreements also apply to the restricted party's officers, directors, and employees, it can be difficult to control the actions of all of these people, especially after they end their association with the business.
Noncircumvention agreements are complicated and usually lengthy, complex documents. They need to be entered into with both parties fully understanding the agreement. Both preparation and understanding are likely to require professional legal assistance.
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