Insurance · 22 June 2018

Will a non-compete clause prevent a client and supplier cutting me out of the middle?

Non-compete provisions enable you to restrict your client and supplier from working together and circumventing you

When introducing your client to a supplier during contract negotiations, you need to ensure your position is protected. Grid Law founder David Walker explains how one reader can achieve this with a non-compete clause in the confidentiality agreement.

Question

David,

I have read your article “When are non-compete clauses enforceable?” and wondered if you would be kind enough to steer me in the right direction.

I am a one man limited company selling digital signage solutions and providing consulting services in relation to IT based advertising.

Currently I am working on a project where I need to bring my supplier into the negotiations with my client, thus introducing them.

“I want to protect myself against the client and the supplier working together and cutting me out of the middle.”

I am unsure as to how to achieve this protection and wondered if you could advise please. Having read your article, I think restrictive covenants sounds appropriate, but presumably they would have to be incorporated into a wider agreement?

Ideally, I’d like a simple standalone agreement that says “party A will not deal directly with party B and will only go through party C (me)”.

Would I need an agreement with both parties, or would one suffice? Also, are there generic templates for such agreements?

Any advice you can offer would be greatly appreciated.

Kind regards

Answer

Thanks for your email.

Yes, you’re absolutely right, a non-compete clause would help you here and they do normally form part of a wider agreement.

In your situation, my advice is that you enter into a confidentiality agreement which also contains non-compete provisions prior to the introduction being made.

The confidentiality provisions will allow all three of you to exchange information freely but at the same time ensuring that the information can’t be used or shared outside of your discussions.

If you haven’t seen it already, please also take a look at my article on protecting your confidential information.

The non-compete provisions would enable you to restrict your client and supplier from working together and circumventing you. If they did work together without your involvement they would be in breach of contract and this would entitle you to claim damages to compensate you for the work you have missed out on.

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You can either enter into two separate agreements – one with your supplier and one with your client, or you can enter into one tri-party agreement which you all enter into.

My personal preference is to enter into two separate agreements. Then, if you need to enforce the agreement against, for example, your supplier, you could do so without involving your client and vice versa.

The confidentiality agreement would be valid up to the point when an agreement was reached between the three of you. You would then need another agreement to cover the working relationship between you all. Again, this can contain restrictions to protect you and give you the right to compensation if your involvement is circumvented.

There are standard templates for these types of agreement but usually they are very generic and often need tailoring to your specific needs. If they are too vague you risk them not being enforceable or failing to give you the protection you need.

I hope this helps and if you have any further questions or would like me to clarify anything, please feel free to send an email to editors@businessadvice.co.uk.

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ABOUT THE EXPERT

David Walker is the founder of Grid Law, a firm which first targeted the motorsport industry – advising on sponsorship deals, new contracts and building of personal brands. He has now expanded his remit to include entrepreneurs, aiding with contract law, dispute resolution and protecting and defending intellectual property rights.

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