A common type of restrictive covenant used in the business world is what’s referred to as a “non-circumvention agreement.” This agreement shares some characteristics with non-compete and non-disclosure agreements but, as we’ll discuss below, it serves a distinct purpose for business owners who want to ensure they are compensated for business opportunities they present to other companies.
How Does a Non-Circumvention Agreement Work?
A non-circumvention is a legally binding contract between two or more parties to ensure at least one of the parties included in the contract is not bypassed, or circumvented, in spite of its contributions. It often comes into play when two companies operating in the same industry provide each other with business opportunities. Typically, non-circumvention agreements protect business contacts and other proprietary information.
Example: What Is A Non-Circumvention Agreement
Let’s say you own an auto repair shop. Over the years, you have developed regular customers who take great pride in their cars. You start hearing multiple regulars talk about detailing they want done. Your services are limited to light repair and vehicle maintenance, but you gladly refer them to your business acquaintance, Sal, who owns a detailing shop a few minutes away.
After you spend a few months funneling customers to Sal’s shop, you start to lose contact with a few of your regulars. Suddenly, it hits you: Sal recently expanded his operations and now performs many of the same services you provide. Your “friend” took advantage of your references and is now soliciting them to go to his place for oil changes and tire rotations.
A non-circumvention agreement could have prevented this. You and Sal should have agreed to an agreement that limited what Sal could provide to the customers you send him. At the very least, you would have legal standing to sue Sal for breaking the terms of the non-circumvention agreement (which, by the way, can be a stand-alone contract or a provision within another contract).
Are There Any Downsides?
The party or parties which are not restricted by a non-circumvention agreement see little downside with obvious upside. Sensitive business information and contacts can only be used for a specific purpose under threat of a lawsuit; additionally, in some cases, a party’s competitor can be weakened with the agreement.
Any downsides of a non-circumvention agreement are almost exclusively felt by the party or parties being restricted. Restricted parties could lose out on future business opportunities—especially if the agreement is overly restrictive. A possible upside for restricted parties is that without the non-circumvention agreement, the other party might not have provided the business opportunity.
So…Is It Worth It?
The answer is, simply, it depends, although whether or not you would benefit in the long-run from a non-circumvention agreement depends heavily on who the restricted party is. The best way to find out is talking with a quality business attorney, which you can find at Trembly Law Firm. To speak with a member of our team today, call our office at (305) 431-5678.