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Issues Surrounding a Maryland Breach of Contract Case

Thursday, July 23rd, 2009

Need an Attorney to help your Maryland or DC business? Contact Raymond McKenzie at 301-330-6790 or ray@mckenzie-legal.com

Breach of Contract

Breach of Contract

If you are forced to file suit in Maryland for breach of contract, do not let a poorly drafted contract hurt your chance of prevailing. Do not lose a case that you should win simply because of faulty contract language, language that could have been avoided had you retained an experienced Maryland business attorney to assist.

A contract drafted in Maryland with little or no input from a Maryland corporate lawyer can fail to include several necessary components that help to make a contract legally enforceable. These deficiencies can be fatal to your business’s chance of prevailing in a lawsuit. As a result, make sure that an experienced Maryland business attorney reviews your contracts, and that such contracts address, at minimum, the following five points:

1. Jurisdiction: If you want the ability to sue in Maryland courts, your contract must contain language where the parties submit to the jurisdiction of Maryland state and/or federal courts. This language allows you to sue a business in Maryland courts, even if the company is not incorporated in, or have offices in, Maryland. Without this language in your contract, you will most likely be forced to sue the corporation in its home state. Suing out of state can be significantly more expensive and time consuming.

2. Choice of Law: A Maryland choice of law provision states Maryland law will be used to decide the dispute. Many non-lawyers confuse choice of law with jurisdiction, and interpret the phrase “Maryland law will govern this contract” to mean that a dispute has to be heard in Maryland. That is not the case. Rather, this clause simply means that regardless of where a dispute is heard, whether in Maryland Circuit Court or Virginia or anywhere else, Maryland law will be used to decide the matter.

3. Non-compete and non-solicitation clauses: Do you want to prohibit the other party from competing with you entirely, or just stop them from soliciting your clients? If the former, then you are in need of a non-compete clause, which must be limited in geographic scope, limited in duration, and narrowly defined to protect only the interests of your business in order to be enforceable. Maryland courts will typically enforce reasonable non-competes. However, a non-compete that overreaches will often be struck down. If the latter, then you need a non-solicitation agreement, which allows the other party to compete with you, provided they do not solicit your current or former clients. A non-solicitation clause need not have geographic or time limitations so long as it only forbids the solicitation of your clients by the other party.

4. Default and Termination provisions: Make sure that your contract’s default and termination provisions are clear with regard to: a) what breaches may be cured and what breaches cannot be; b) what the time period exists for any cure; and c) whether amounts due over the life of the contract still owed even if the contract is terminated.

5. Dispute Resolution: Choose the type of dispute resolution system that you feel best fits your business. Mediation, arbitration and litigation are options, and they can be used in compliment of one another. Regardless of what method of dispute resolutions you choose, always allow your business the option of filing for emergency injunctive relief in Maryland court when necessary to avoid irreparable injury to your business.

Need an Attorney to help your Maryland or DC business? Contact Raymond McKenzie at 301-330-6790 or ray@mckenzie-legal.com

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What are the differences between a “non-compete agreement,” “non-disclosure agreement,” and “non-solicitation agreement”?

Thursday, June 18th, 2009

Need an Attorney to help your Maryland or DC business? Contact Raymond McKenzie at 301-330-6790 or ray@mckenzie-legal.com

Business clients often confuse the above terms, each of which protect business owners from a different type of harm. I will summarize the three types of agreements below.

Non-compete agreement

A covenant not-to-compete is an agreement whereby a party agrees not to compete against another party: 1) in a specific line of business; 2) for a definite period of time; 3) in a limited geographic area.

A non-compete agreement is usually found as part of a broader contract, such as an employment agreement or franchise agreement, and will take effect upon termination of the contract.

Maryland courts allow a covenant not-to-compete to be enforced provided it is “reasonable” in the activity it restricts, as well as in its geographic scope and duration. A typical non-compete looks something like the following:

Employee hereby agrees that for a period of one year following the date of termination of this Agreement for any reason, Employee shall be prohibited from acting, directly or indirectly, as an owner, manager, operator, consultant or employee of any business or business activity that is in the business of providing services similar to or competitive with Company.

Non-disclosure agreement

A non-disclosure, or confidentiality, agreement (“NDA”), is an agreement whereby a party pledges not to disclose the confidential and proprietary information of another party. NDA’s are commonly used to protect confidential information not generally made available to the public such as trade secrets, customer lists, business and marketing plans and strategy, and financial information, so that such information does not fall into the hands of competitors or even the public at large. NDA’s can be found in many employment and independent contractor agreements, as well as agreements where businesses are performing due diligence on one another prior to some type of relationship commencing.

Unlike the situation where covenants not-to-compete must be reasonable in all areas, non-disclosure agreements will be enforced by Maryland courts unless the person or company that is alleged to have violated the NDA is able to show that it learned of the confidential information from an independent, outside source. Whatsmore, an NDA need not contain any geographic or time restrictions in order to be valid and enforceable.

A typical NDA will look like this:

Employee acknowledges that Company may, in the course of Employee’s employment, provide Employee access to Company’s trade secrets, customer lists, business and marketing plans, financial information, and other confidential information related to the business of Company, including access to Company’s Employment Manual (the “Manual”). Employee agrees to retain all such information as confidential and may not use such confidential information on his or her own behalf or disclose such confidential information to any third party during or at any time after the term of Employee’s employment.

Non-solicitation agreement

A non-solicitation agreement is an agreement whereby a party pledges not to solicit the clients and customers of another party. Non-solicitation agreements are generally found in employment and independent contractor agreements, as well as vendor arrangements where one party is granted access to the clients list of another party.

Like an NDA, a non-solicitation agreement need not contain any geographic or time restrictions in order to be valid and enforceable in Maryland. A common form of non-solicitation agreement follows:

Employee hereby agrees that for a period of one year following the date of termination of this Agreement for any reason, Employee shall be prohibited from soliciting business from, or performing services for, or inducing or attempting to induce, any customer or client of Company, its subsidiaries or affiliates, to cease doing business with Company, or in any way interfering with the relationship between Company and any customer or client of Company.

Many business contracts will contain one or more of the above agreements. It is therefore important to be able to distinguish among them, and draft contracts that are specific to your business needs.

Need an Attorney to help your Maryland or DC business? Contact Raymond McKenzie at 301-330-6790 or ray@mckenzie-legal.com

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