What Is a Non-Circumvention Agreement?

A non-circumvention agreement is a type of business agreement that prevents one party to the contract from taking a business opportunity without compensating the other party. Such an agreement requires that if the party receiving confidential information benefits from that information, the first party must pay the second an agreed-upon amount. A non-circumvention, or non-circumvent, agreement can stand alone as a contract. It can also be a clause in a broader contract.

A non-circumvention agreement usually contains the names of the parties that will share confidential information, the topic of their conversation, the purpose of keeping this information confidential and the length of time that the agreement lasts. The agreement also provides which states’ laws govern the contract. Typically, the law of the disclosing or receiving party’s state will apply. Sometimes both parties want the law of the state in which the agreement was formed to apply.

A non-circumvention agreement would be appropriate when the corporate office of a franchise hair salon shares its list of local customers with the new franchise operator, for example. The non-circumvention agreement might state that the franchise operator is now prevented from sending monthly coupons to the customers without telling the corporate office how many customers took advantage of the offer. A non-circumvention agreement would also be appropriate when a software company shares its list of business partners with a new independent contractor. The non-circumvention agreement might state that the independent contractor is prevented from sharing the information about the details of these partnerships with the media.

Non-circumvention agreements and similar contracts are commonly used by staffing agencies. The non-circumvention agreement ensures that the staffing agency will be compensated by the hiring company, the contractor, or both for identifying the contractor and introducing them to the hiring company.

Usually a non-circumvention agreement involves the disclosure of a client, customer or partner list, or other proprietary information, such as a trade secret. A trade secret could be anything from the formula for a cola drink to a specialized procedure to create a waterproof synthetic material. The party receiving the list or trade secret is required to not disclose the information nor use the information to its advantage in an unauthorized way. If the receiving party does so, they circumvent the agreement.

A nondisclosure agreement, or NDA, is mainly focused on secrecy. An NDA is meant to ensure that information about the terms of the contract remain secret. A non-circumvention agreement may involve confidential information, yet its main purpose is to guarantee that one or more of the parties does not leave the other parties uncompensated. By homing in on the circumvention, the non-circumvention agreement builds trust between the two parties.

A non-circumvention agreement may be signed at the same time as a nondisclosure agreement. The two types of agreements can also be combined into one contract or clause, a non-circumvention, nondisclosure confidentiality agreement. This is known as a NCNDCA.

Read More: How to Fill in an NDA Form

Parties typically sign a non-circumvention agreement when they do not know each other well. They use this agreement to ensure that no concerns about trust develop.

An assignment is a transfer of rights from one party to another. This legal tool is usually used to award an entity outside the contract, or a third party, one party’s rights. As an example, a disclosing company could assign their right to receive damages from a violation of the non-circumvention agreement to a charity. Many non-circumvention agreements prohibit any type of assignment.