A non-circumvention agreement is a legal document that can protect your business from being undercut or taken advantage of during special contractual agreements with other businesses. This type of agreement also often includes non-disclosure and confidentiality clauses which further protect your company’s efforts. The non-circumvention agreements purpose is to ensure that the identity of the introducing party’s contacts remain confidential, that the other party will not circumvent the introducing party to engage with their contacts. Essentially, once this agreement is signed by all active parties, and if it is violated, the violating parties will be responsible to pay penalty fees of triple the amount that the introducing party would have received had the contract not been violated. Basically, if you sign the contract, you keep the introducing party included and don’t go behind their back or you’ll pay hefty fees.
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An example of a situation what circumstances a non-circumvention agreement would be used is below.
You own a special boutique that designs high-quality blouses for women. You, party A, design high-quality blouses to be distributed to department stores nationwide. Party B, is a high-quality blouse manufacturer. You have contacted party B to manufacture these blouses to your design specifications and then to ship them to the department stores (party C). The non-circumvention agreement prevents party B from creating these specialty blouses for a lower fee arrangement than offered by party A. It also prevents party B from bypassing party A altogether and going directly to party C with the same products.
Non-circumvention agreements aren’t always used, but in the event they need to be here’s what it would look like. This specific agreement also includes the non-disclosure and confidentiality agreement clauses.
Non-Circumvention Agreement Parts and Examples
- Term of Agreement
This section allows you to state the terms of the non-circumvention agreement. Explain how many years the agreement is good for from the date of signing, if there is an automatic renewal after completed transactions, and how term amendments are to be handled.
Example: This non-circumvention agreement is active for three years from the time all parties sign this agreement. It’s effective for a period of one year after the completion of each transaction without the need for any notice or advisement unless agreed upon by both parties in writing. Termination can occur at any time as long as it’s acknowledged through certified mail with receipt.
- Contacts Deemed Exclusive and Valuable
Here you can explain what you consider to be valuable information that is to be kept between the parties. This is, after all, one of the reasons for this document to exist in the first place, so be specific.
Example: Due to the nature of this agreement, the parties involved in any transactions may be provided with contact information (names, email addresses, phone numbers and addresses) and other private data of clients, investors, brokers, agents, borrowers, lending corporations, manufacturers, banks, individuals, buyers and or sellers. These are what will be from here on out referred to as “contacts”. The parties agree that the identities of these contacts are valuable and exclusive contacts of the introducing party and will continue to be so for the life of this agreement.
- Commission or Fee Agreements
Draw out the terms of your fee and commission agreements. You can add more detail here if you know you will have standard fees for certain services, but leaving it open is advisable so that changes can be made and agreed upon at a later date.
Example: The fee or commission agreement may vary surrounding each business transaction that will occur because of this agreement. The fee or commission agreement must be drafted and acknowledge by signature by both parties before any action is taken. There may be a separate fee or commission agreement for each business transaction.
- Liquidated Damages
If one of the parties violates the terms of this agreement, what are the penalties? You can change this to fit your specific situation but this is a general guideline as to what is used for this kind of agreement.
Example: In case of circumvention, the parties agree and guarantee that they will pay a legal monetary penalty that is equal to three times the commission or fee the circumvented party should have obtained in the transaction, by the person or entity engaged in the circumvention for each instance.
This clause does not have to be included to have an adequate non-circumvention agreement. However, often time transactions of this nature require confidentiality in addition to non-circumvention rules so it makes sense to put them together in one legal document. If your business requires more protection from the ill release of confidential data pertinent to the health of your business, you can read this article on writing up a non-compete agreement. This can be applied to employees and contractors alike.
Example: The parties will keep confidential the names and other personal information of any contacts introduced or disclosed to the other party, and that their corporations, partnerships, divisions, associates, firm, employees, contractors, agents, joint ventures, assigns, consultants, or designees will not contact, participate or negotiate in any transactions with any of the contacts without first signing a written agreement with the party who provided such contact, unless that party gives prior written consent.
Much like the confidentiality agreement, the non-disclosure simply states that the parties involved are not allowed to reveal any pertinent information regarding the other party’s business, products, ideas, etc. Whatever you feel is important to you and your company you can include in this clause for ultimate protection. Intellectual Property law is a tricky thing to understand. Know your rights regarding your ideas and potential services so you don’t end up in a bad situation. Learn all about IP Law, trademarks, copyrights and etc. in this online tutorial.
Example: The parties agree not to reveal, disclose, or use any information they observed or discussed regarding products, concepts, services, or ideas, or proposed new services or products, nor to conduct business with any of the contacts without the written consent of the introducing party or parties.
- Choice of Law
This is just stating that the state in which you are conducting business has laws aligning with the terms of this agreement. Do a little research about your states laws regarding circumvention to ensure your terms are fitting. Most appropriately, the parties drafting this agreement will contact a lawyer to ensure the document is sound and stands up against state law. Learn more about legal advice for entrepreneurs in this online course.
Example: The parties will interpret this agreement in accordance with the laws of the State of [name of state]. If any provision of this agreement is reasoned void by any court, the remaining provisions shall still be in force and effect.
- Attorney Fees
If you end up in court over this document, the party that ends up on top will not have to pay any court costs. Those expense will be left for the party that does not prevail.
Example: If either party pursues legal proceedings to interpret or enforce the terms of this agreement, the party that prevails will be entitled to recover court costs and attorney fees.
- Entire Agreement
You want to ensure that when this document is signed that all the parties involved understand the terms and know that if any modification is to be made it must be made in writing, attached to the original document and must be signed by all parties involved. In legal terms it’s a little more eloquently spoken:
Example: This agreement contains the understanding between the parties, and any amendment to this agreement is subject to the above terms and must be signed by all parties involved and shall be attached to this agreement.
Like aforementioned, it’s in everyone’s best interest if this agreement is drafted by a lawyer as to avoid potential loopholes or unforeseen downfalls in the language. An introduction to business course is a great place to start when you are beginning to draft documents like these and to help guide you as you start your entrepreneur journey.