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Running a business means taking a lot of risks, and this includes your business relationships. Every time you collaborate with another business you risk your business knowledge, expertise and contacts.
A non-circumvention agreement allows you to protect yourself. This guide will take you through what you need to know.
What's in this guide?
- What is a non-circumvention agreement?
- When should I use a non-circumvention agreement?
- Non-circumvention agreement versus non-disclosure agreement
- Non-circumvention agreement versus non-compete agreement
- What does a non-circumvention agreement include?
- How effective is a non-circumvention agreement?
- Do I need a lawyer for a non-circumvention agreement?
- Get access to customisable non-circumvention agreement templates online
- How do I write a non-circumvention agreement?
- Where to get free legal documents and templates like a non-circumvention agreement?
What is a non-circumvention agreement?
A non-circumvention agreement is a legally binding agreement between the parties who are engaged in a business transaction. It's usually set up by the party that is at risk, who is called the "protected party". It establishes clear rules about relations between the parties and prohibits any form of conspiring at the expense of the protected party.
When should I use a non-circumvention agreement?
These agreements can be useful in a number of business transactions including franchise setups, agency contracts and during normal business transactions.
For example, with an agency contract, you might bring two businesses together to engage in business with you. Non-circumvention agreements make sure you won't be cut out of the transaction or taken advantage of. It stops the other two parties from bypassing you and doing business exclusively with each other. You can also be compensated if this happens.
Non-circumvention agreements can also protect you from parties that want to exploit your contacts or networks. For example, if you reveal details of your contracts or business clients, the other party could sign up your clients with the knowledge you gave them. A non-circumvention agreement restricts them from doing this.
Non-circumvention agreement versus non-disclosure agreement
A non-circumvention agreement restricts parties you are contracting with from using your relationship to gain a business advantage. A non-disclosure agreement is designed to protect sensitive information.
Non-disclosure agreements are usually used when two parties entering into a relationship will gain access to each other's sensitive information. This includes trade secrets and other intellectual property. The agreement prevents the business from sharing any of this information.
Non-circumvention agreements and non-disclosure agreements are usually used together. Some non-circumvention agreement templates even have non-disclosure clauses which provide added protections to protected parties.
Non-circumvention agreement versus non-compete agreement
Another related document is a non-compete agreement. This agreement is often found in employment and franchise relationships. It stops employees and franchisees from using business information to compete with the company later on.
Non-circumvention agreements differ from non-compete agreements. While the first prevents circumvention in cases of agency or business-to-business relationships, the second prevents competition from employees and franchisees who have learned a business' trade secrets.
What does a non-circumvention agreement include?
- Who is included. The parties bound by the agreement.
- The term. The period of time for which the agreement remains in force. It can be subject to renewal after elapsing.
- Non-circumvention clause. This is the clause that expressly prohibits a party from conspiring to the economic disadvantage of the protected party.
- Penalties. This is the amount in damages that a restricted person or business faces for breaching the agreement. It is usually the amount that the protected party would have earned had the breach not occurred plus more.
- Where the agreement is enforceable. This is the geographic area within which the agreement's restrictions are valid.
- General provisions. The agreement may include other general provisions.
- Infinite terms. The agreement needs to define when it is valid.
- Broad reach. It shouldn't apply too broadly, for example, where the protected party has no business.
- Too restrictive. It also shouldn't restrict the party so much that they are incapable of transacting in other business areas.
How effective is a non-circumvention agreement?
A non-circumvention agreement effectively protects your business contributions, especially when they are relationship-based. In agency contracts, it protects the central figure bringing the other two together, minimizing the risk of loss as a result of being left behind.
If the agreement includes non-disclosure clauses, it will provide you additional protections by restricting other parties from using your sensitive information in ways other than those allowed in the contract. If a restricted party breaches a non-circumvention or non-disclosure agreement, the protected party has a right to recourse for damages suffered.
Do I need a lawyer for a non-circumvention agreement?
You don't need a lawyer to prepare a non-circumvention agreement. You can get a non-circumvention agreement template online and tailor it to your business' needs. This will be suitable for most agency situations. However, if the nature of your business transaction is complex and there is plenty at stake, including trade secrets, you should consult a lawyer first.
Get access to customisable non-circumvention agreement templates online
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How do I write a non-circumvention agreement?
- First, download a non-circumvention agreement template from a good source (we list some below).
- Sit down with the parties you are entering into a business arrangement with and agree on the terms.
- Be clear about your concerns as the central party and outline the protections you want to safeguard your contributions.
- Frame the non-circumvention clause so that it fits within the scope of the business you all will be engaging in. Make sure the wording expressly restricts the other parties from conspiring behind your back to leave you out of the business transaction and outline heavy penalties for breach of the agreement.
- Establish a time frame within which the agreement will be in place. If there is the possibility of further business engagement, make the term renewable.
- Identify where the agreement applies (the jurisdiction) and then have all parties sign it to give it effect.
Where to get free legal documents and templates like a non-circumvention agreement?
Here's where to find non-circumvention agreement templates:
- Lawpath. An online legal resource for small businesses, Lawpath has legal document templates to suit a variety of needs. Sign up and search for a non-circumvention agreement template. Follow the instructions and fill in all relevant details then download your ready-to-use document. You get one free document.
- LegalVision. This platform gives users access to legal counsel and legal documents, including non-circumvention agreement templates, for a monthly fee of $199.
- FindLegalForms. This website has legal documents prepared by Australian lawyers and verified for validity within the country. It charges a fee to download these documents. A non-circumvention agreement costs $22.95 AUD.
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