Agreements with contractors, regardless of the entities they are concluded, often contain non-competition clauses. Some of them say that we cannot carry out specific actions during the term of the contract, some time after its expiry, and even for other contractors (despite the fact that cooperation with them had started earlier). How to read the provisions on non-competition and how to protect your interests?
Competitive entities and competitive activity
In the provisions of the agreement between contractors, there is often a point about the prohibition of cooperation with competitors. It is worth clarifying it so that it is clear with which companies we cannot cooperate at a certain time. These can be, for example, companies that run an online DIY store – if the contract contains a prohibition on cooperation with competitors, then the A store with which we cooperate will be a competition for the B store, which, for example, asked us for an offer and vice versa. Clarification of the issue of competitive activities (a situation where we want to open an online DIY store) and competitors will avoid the legal consequences of breaching the terms of the contract.
Non-competition and its duration
The non-competition may apply during the term of the contract, but it often happens that the contractor reserves the right to it also after the termination of cooperation. It is often a period of 3, 6 or 12 months. This is a disadvantageous provision for us, because after the termination of the contract, we cannot provide services to a competitor (the aforementioned online building store B), which means that we do not earn. It is in our interest to negotiate this point and possibly shorten the ban to a minimum after the end of cooperation.
Breaking the non-competitionand contractual penalty A contractual
clausepenalty is a “mandatory” point in non-competition agreements. These are often high amounts, especially if we sign a contract with a large contractor – everything of course depends on the nature of the cooperation and the type of services. It is in our interest that any possible penalty is as low as possible, but that’s not all. It is also important that the obligation to pay the penalty occurs not when the non-competition clause is breached, but when the client finds out about it – the time between the two may differ.
Non-competition – summary
Non-competition is one of the important points in the contract, which is worth looking at before signing. What you should pay attention to is who will be the competitor and what the competitive activity is, how long the non-competition clause is in force (if also after the contract expires, negotiate this time) and what is the amount of the penalty for possible breach of the ban. Also, the contracts that you present to your contractors should contain clearly defined provisions regarding non-competition – you should protect your interests. You can prepare the contract yourself or use the help of specialists or their advice