How to Limit the Scope of a Non-Compete Clause
non-compete clause primarily restricts a provider to provide similar services to client’s customers
What is a Non-Compete Clause
A Non-Compete Clause is a covenant in a contract whereby one party agrees not to compete with the other party for a period of time.
What is the Effect of a Non-Compete Clause
In essence, non-compete clause primarily restricts a provider to provide similar services to client’s customers with whom the provider has made contact in the performance of the services to the client. Basically the clause’ s primary intention is to prohibit a service provider from soliciting clients’ customer in the course of its agreement with the client.
This clause is certainly one sided and unilateral that is drafted for the sole benefit of the client to ensure that provider will not in any way offer its services to clients’ customers. In this way, the client will be assured that at any point, it will not lose a client or prospective client over the provider. On the other hand, the service provider will not gain new customers at the expense of the client.
However, non-compete clause will certainly impede the provider’s potential income from new clients. The clause restricts the providers earning capacity which as a rule, should be maximized at all times. Therefore, as a rule, a provider should not agree to non compete clause due its prejudicial effect to its potential revenue.
If the client is adamant in including non-compete clause, the provider should impose certain exceptions.
Limitations in the Scope of a Non-Compete Clause
1. It should cover only existing client. One of the ways to restrict the impact of a non-compete clause is to limit the coverage to existing clients and to companies with whom the provider has provided services through the client.
2. It should not cover the Service Provider’s Affiliate, Subsidiary or Parent Companies. A Service Provider should negotiate that its affiliates, subsidiaries or parent companies should not be prevented from entering into contracts with the Client’s existing customers.
Your take
What are the ways by which your company limit the scope of a non-complete clause? Share us your tips in the comment below.
