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What is a Non-Circumvention Agreement?
A non-circumvention agreement is a contract put into place to protect parties participating in a business deal. Non-circumvention agreements are signed to prevent a business from bypassing, or ‘circumventing’, another business and to guarantee full compensation will be received by the business doing work for or with another.
In many business deals, one party may introduce another party to its customers, vendors, or another high-value party during a transaction. By giving a party this exposure, a business may worry they will be ‘cut out’ of a deal. This is exactly why the non-circumvention agreement was created.
This agreement is often used in partner arrangements where one party may not show signs of trustworthiness or possibly it is just a precaution taken when someone new or unknown is being worked with.
There are agreements that are similar to a non-circumvention agreement which are listed below:
- Confidentiality Agreement - This agreement, also known as a non-disclosure agreement , is used when business partners agree that they will not share confidential information they learn during a transaction with anyone else.
- Noncompete Agreement – Noncompete agreements are useful when a business wants to make sure an employee or partner does not partner with a competitor and use proprietary information they learned to compete against their own business.
Read this article to learn more about non-circumvention and related agreements.
What’s Included in a Non-Circumvention Agreement
When writing a non-circumvention agreement, you will want to include the essential sections below:
- Involved Parties – Each party of the agreement should be included in the contract. If businesses, the party’s legal business name should be used.
- Compliance - A compliance section should be added to detail what rules and procedures each party needs to comply with and what will happen if they do not.
- Duration – Clearly state the beginning and end dates of the agreement along with notes indicating what will happen when the contract ends. If any gaps are expected during the timeframe of the agreement, then that should be expressed.
- Confidentiality - This section should be detailed with the type of information that is to be kept confidential and out of reach from third parties. You will be able to refer to this later and use it to your advantage if confidential information is disclosed to a person or business outside of the agreement.
- Payments - All fees, commissions, or other forms of payment are to be listed in this section. It should be stated whether there is a standard set fee or if payments will vary depending on the time spent or work done.
- Liquidated Damages - You can use this section to describe what will be expected from the wrongful party if terms of the agreement are violated at any point. It is typical for these types of damages to be paid in the form of money at an amount agreed to based on the specific breach that was done.
- Non-Disclosure - This section almost mirrors the confidentiality part but it goes into further detail as to what information, secrets, contact information, and other private data cannot be shared with anybody not involved in the current business. If there is a specific timeframe for which this applies and the disclosure of some information will be permitted at some point in time then that should be added.
- Termination - A termination section should be included to describe what actions may justify the early termination of the agreement. If a termination will result in a reduction or total loss of payments then that also needs to be laid out.
- Applicable Laws - This part of the agreement should list the local, state, federal, and industry specific laws that apply to the business being conducted as well as the location. This will allow parties to understand what exact legal action can and will be taken if violations happen.
- Attorney Costs - If a legal action is taken then lawyer fees will need to be paid. This section should clearly state who will be responsible for attorney payments and if there is a specific cap on the amount.
Pros and Cons of a Non-Circumvention Agreement
Non-circumvention agreements are great tools to have when working with partners outside of your direct company or circle of partners. As with any contract though these agreements have good sides and potential bad sides. See below for details:
Pros of Non-Circumvention Agreements
- It is guaranteed that personal or confidential information cannot be released outside of or used against the business.
- There is legal assurance that if a violation occurs the party that broke the agreement can be sued and may be demanded to pay money for damages.
- Promised payments per the agreement are required to be made to each party who performed work responsibly even if there is some sort of minor dispute.
Cons of Non-Circumvention Agreements
- The party being restricted may be subject to a long-time constraint that might prevent the ability to work in similar areas of business even when the agreement ends.
- Although there are sections in the agreement requiring parties to keep information confidential and not to trade secrets, it can be difficult to control their business actions once the assignment is complete and even while it is still active.
- An excellently drafted non-circumvention agreement is required to ensure all necessary sections and details are included and useful for the future. This can ultimately take up a lot of time and money to get it done right by a legal professional.
Image via Pexels by Savvas Stavrinos
Are Non-Circumvention Agreements Legally Binding?
Yes, a non-circumvention contract is a legally binding agreement. This type of agreement guarantees that a party who has been wronged by a breach can sue another business partner.
There are several sections in these agreements that represent legal requirements and what as well as where legal action will be taken if it comes down to that.
Brokers and Non-Circumvention Agreements
Brokers act on behalf of their clients and may be perceived to not do much in certain business deals. For this reason, they are susceptible to instances of circumvention. Due to the small role agents may play in a business transaction they safeguard themselves and their clients by putting a non-circumvention agreement into place.
A partnership becomes a joint venture when three or more parties come together to carry out business. When brokers enter into a joint venture it is done with the intention of being paid commissions or some other form of award for services performed. A non-circumvention agreement will benefit you as a broker in this scenario by guaranteeing your payment is received once your work is done.
Read this article on non-circumvention agreements and brokers.
Getting Help With a Non-Circumvention Agreement
Lawyers that handle business contract needs are well suited to assist you in drafting a non-circumvention agreement. If you need help today, post a project in ContractsCounsel’s marketplace to get bids from vetted lawyers for your project.
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