In any commercial arrangement, the relationship between the parties can be the defining feature of the success or failure of your arrangement. A non-circumvention clause attempts to draw the boundaries of exactly who is in this relationship. This article explores what a non-circumvention clause is and some key legal considerations.
What is a Non-Circumvention Clause?
Broadly, a non-circumvention clause is a restraint on trade. It aims to limit the other party from bypassing you, engaging directly with your suppliers or clients, and removing your chance to enter profitable business dealings.
They are a valuable clause to include in your commercial contracts to protect your business transaction. Likewise, they are particularly helpful when engaging with new businesses where you have not yet established a strong business relationship.
Key Elements of the Clause
A non-circumvention clause will cover key elements, such as:
- time: how long will the limitation be in place?
- parties: who are the parties, and who is being limited?
- scope: what conduct is specifically being limited?
- exclusions: under what circumstances will this clause not apply?
Where Would I See a Non-Circumvention Clause?
Non-Disclosure Agreements
It is common to see this type of clause in a non-disclosure agreement (NDA). An NDA is a typical first step between parties looking to engage with one another. It marks the first stage of a commercial relationship. If you are meeting with a new party and disclosing confidential information, such as your client list, this clause can be pivotal to protecting your business interests.
Most well-drafted NDAs can legally protect and restrict the sharing of confidential information. However, when it comes to the internal use of confidential information, businesses tend to implicitly rather than explicitly address this point. When engaging with a business for the first time, it is best practice to take a more protective approach. Asking your lawyer to add a clause like this can provide peace of mind as you progress with a new business arrangement.
Other Agreements
Other commercial contracts could benefit from a non-circumvention clause. The table below lists other commercial agreements.
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Type of Commercial Contract |
Why add a non-circumvention clause? |
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Collaboration or joint venture agreement |
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Supply agreement |
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Distribution agreement |
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Legal Considerations
Restraints on trade (of which non-circumvention clauses are a type of restraint) can be an important protective mechanism for your business. However, these clauses can be quite onerous on a party if they extend for long periods or over large areas. Courts view these clauses as anti-competitive and can strike these out from your contract.
It is critical to strike a balance between a clause that protects your business and the integrity of your business arrangement, as well as one that is reasonable for the interests of the public. If a consumer wants to engage with the other party, your business cannot unreasonably stop them. However, non-circumvention clauses do their best to stop the solicitation or sidestepping of your business in pursuit of profit.
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Key Takeaways
A non-circumvention clause can be a helpful restrictive clause to protect your business and its place within a business relationship. It cements your place in the dealings and means that the other party cannot skip over you in search of a similar arrangement. Notably, be aware of how this clause acts as a restriction on the other side. Accordingly, ensure you only enforce this clause where it is necessary for your business.
If you want to discuss whether you should include a non-circumvention clause, our experienced contracts lawyers can assist you as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 1300 544 755 or visit our membership page.
Frequently Asked Questions
A restraint of trade prevents a party you engage with from using the information and resources you provide to compete with you with other businesses similar to yours. In contrast, a non-circumvention clause prevents the other party from soliciting your clients or suppliers into engaging with them directly.
Both clauses are similar. However, the non-circumvention clause addresses your suppliers and clients. The non-solicitation clause aims to protect your employees and contractors from being poached by the other party.
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