What is a Non-Circumvention Agreement?
A non-circumvention agreement is a legally binding contract between two or more parties that stipulates finding and doing business with contacts, partners, and investors may only occur through the disclosing party. In other words, the other party to the contract (the "non-disclosing" party) agrees not to deal directly or indirectly with the contact without the consent of the disclosing party. More than just a non-compete agreement, a non-circumvention agreement goes further by prohibiting any attempts to avoid or evade the disclosed relationship . In the International marketplace, it is often used to protect an introduced business opportunity and prevent the other party from circumventing or avoiding the introducer in future dealings.
Non-circumvention agreements are often used to protect the introductions of investors and business partners to an opportunity, to protect the introduction of a principal in a business merger or acquisition, to protect the introduction of a manufacturer or supplier, and to protect the introduction of a product or service.
Essential Elements of a Non-Circumvention Agreement
A non-circumvention agreement template should include all of the key elements of a non-circumvention agreement. The agreement should begin with a recital of the relevant facts. For example a party may be submitting a business for consideration by a business partner. Perhaps there is a new idea or invention that a party wishes to disclose to a potential business partner.
The non-circumvention agreement template should include a confidentiality provision. In many instances, the confidentiality and non-circumvention agreement is the only contract that exists between the parties. It effectively creates a business deal between the parties.
The agreement will usually contain a description of the relationship between the parties including their obligations. Each party has an obligation to act in good faith and with the duty of due care as it relates to the other. In many cases there are exclusivity provisions that provide that one party is not allowed to talk to other competitors of the party and the non-circumventor will speak with in an exclusive manner until a mutually beneficial agreement is in place.
Benefits of a Template
When considering the use of a non-circumvention agreement template, it is important to take into account the benefits offered through its use. The most notable benefit is the time saved in drafting all of the necessary elements of a non-circumvention agreement. These can take a minimum of several hours and sometimes days to draft properly. A well-written non-circumvention agreement will have many required components: All of these components can be included with a simple click of a button when using a non-circumvention agreement template. Similar agreements that do not utilize a non-circumvention agreement template may leave out one or more of these components, which can be disastrous in any potential future litigation. Another substantial benefit of using a non-circumvention agreement template is the cost savings. In addition to saving time, the resultant reduction in legal fees can be substantial when drafting all of these components by hand.
Non-Circumvention Agreement Templates are especially useful for businesses that rely on more than one of these components, as it virtually guarantees that all if not most are not omitted.
Using a Template Stripped for Your Needs
A non-circumvention agreement template serves as a foundational document for businesses engaged in transactions and relationships that require measures to protect their interests and confidential information. However, it’s important to customize these templates to fit the specific context of the business relationship. Customization involves adjusting the language of the template, selecting appropriate protective measures to be included, and ensuring that all parties’ interests are represented. Make sure that the parties are clearly defined, and detail the scope of confidential information that is protected. For example, it may be necessary to modify any references to password protection, logins, intellectual property (IP) rights, or any other areas that would be better addressed in terms specific to your company. It’s also crucial to consider the inclusion of any company or industry-specific clauses, which may provide additional layers of protection. For instance, if your company deals with highly sensitive data, you might need to add clauses that explicitly discuss the handling of data breaches or discuss indemnification for any breach of the agreement. Involve all parties in the discussion of what should and shouldn’t be included in the non-circumvention agreement, as their unique perspectives on what is important to them will have a significant influence on the level of protection the agreement provides.
Common Pitfalls
Even a highly-contracted non-circumvention agreement template can have pitfalls. For instance, you should avoid making the following mistakes:
Failing to include definitions of terms, particularly vital terms like "confidential information", "terms of service", "business opportunities" and "geographical boundaries" .
Failing to define the parties in a manner that clearly sets out their involvement with your business.
Lacking jurisdictional clarification of where the parties will file legal claims arising out of the agreement.
Having too little or too much detail regarding the parameters of the relationship that could lead to breaches of the agreement by one or both parties.
Legal Considerations and Implications
Legal considerations and compliance are critical components of drafting and implementing a non-circumvention agreement. Such agreements must not contravene applicable laws in order to be enforceable.
In most jurisdictions, agreements not to circumvent, such as non-competition, non-solicitation, and non-circumvention agreements, will be regulated by applicable employment agency or competition laws. For instance, an employer is obliged to prove that an employee has an interest or right that requires protection that is greater than the public’s interest in trade and free-market competition. Practically, this means that non-circumvention agreements cannot impose unreasonable restrictions on individuals’ ability to participate in the market.
If the non-competition provision within the agreement only restricts the activity of the former employee within a specified market (or customers who are the subject of the agreement and/or are known to the employer), there is a far higher likelihood that it will be held enforceable. By contrast, if the non-competition provision bars the former employee from ever opening a competitive business or otherwise being employed within the same sector or geographic area as the former employer, it is far more likely to be unenforceable as overly broad.
When entering into a non-circumvention agreement, it is important that such agreements are drafted and presented fairly. There have been many recent cases where courts have refused to enforce a non-circumvent agreement where the agreement was not presented fairly and the other party to it did not have legal or business advice prior to signing it.
While it is not strictly necessary to have legal counsel review and advise on a non-circumvention agreement, such legal advice would help ensure that the agreement complies with applicable law.
Frequently Asked Questions
Many businesses have questions about non-circumvention agreements and how to use a non-circumvention agreement template. Some questions that come up frequently include:
1. Is the non-circumvention agreement template legally binding?
If it is properly executed, a non-circumvention agreement template will grow into a legally binding contract. Such a contract will be legally enforceable so long as it does not violate federal or state law, and the parties to the agreement have legally competent authority to enter into a non-circumvention agreement in the first place.
2. When should I use the non-circumvention agreement template?
The non-circumvention agreement template should be used prior to disclosing confidential or proprietary information to the counterparty. Because a non-circumvention agreement covers more territory than the non-disclosure agreement does, it should only be used when the circumstances warrant the creation of an agreement with broader non-circumvention clauses. A non-circumvention agreement may only cover the diversion of business activities from the top company in the chain down to the bottom company. The non-disclosure agreement, by contrast , only prevents the disclosure of the confidential information. If, however, the company in the middle has some measure of control over the two other companies, it may be worthwhile to use the non-circumvention agreement instead of the non-disclosure agreement.
3. When should I not use a non-circumvention agreement template?
If the information to be disclosed is minor and does not require a legally binding agreement to be avoided by one party or the other, then a non-disclosure agreement should be used instead. For example, if a company learns that the second company in the chain does not properly screen its potential clients, it may decide not to disclose certain information to it. In this case, a non-disclosure agreement would suffice.
4. Is a non-circumvention agreement template confidential?
The non-circumvention agreement template is not confidential. However, the template contains several blank spaces for the clearly-written and legible text to be filled out. Any information that the user of the non-circumvention agreement template includes in those blank spaces would be considered confidential and the template agreements that result could be governed by a separate confidentiality agreement.