How can I protect my clients, suppliers and employees in cooperation agreements with third parties?
Entering into partnerships with third parties outside our company is key to business growth, enabling companies to leverage synergies, expand market reach and improve operational efficiency. However, in most cases, these agreements involve third parties having access to sensitive data about our organisation, such as our network of clients, suppliers or employees.
Therefore, in addition to signing confidentiality agreements, it is very important that collaboration contracts include and regulate adequate protection mechanisms to prevent us from giving our competitors key business data.
Non-compete clauses
Non-compete clauses are legal tools that play a crucial role in protecting the commercial interests of companies, and are designed to prevent insider information obtained during the business relationship from being used unlawfully.
In the context of partnership contracts, these clauses should include:
- Restrictions on commercial activities, which define what actions will be prohibited between the parties during the course of the collaboration and after its termination, in order to prevent the collaborator from initiating a similar business on the basis of information obtained during the relationship;
- Geographic restrictions, which limit the parties’ ability to operate in a particular location or geographic area and;
- Temporary restrictions, which set a fixed duration to the above prohibitions.
For example, for a period of two years after the expiry of the contractual relationship, we may restrict a third party with whom we have collaborated from starting a business similar to ours, in the company’s usual area of operation or throughout the national territory. Non-compete clauses must be tailored to the company’s needs for protection, but they must be reasonable and narrowly tailored in order to be valid.
By including it, we prevent the party to whom sensitive information has been provided from using it to compete unjustifiably, helping to maintain positive and trusting business relationships.
Non-solicitation clauses
Another fundamental aspect to safeguard in our relations with third parties is our clients, suppliers and key employees. To this end, non-solicitation clauses prevent a party from directly or indirectly engaging these key figures for a certain period of time.
Protecting our clients is one of the most feared points when deciding to collaborate with a third party, so it is essential to include in our contracts mechanisms to prevent a third party from initiating campaigns to attract or ‘steal’ existing clients, thus incurring in unfair competition that could harm our company.
To this end, there are mechanisms in place to prohibit the direct or indirect solicitation or attempted solicitation of our organisation’s pre-existing clients, expressly regulating the obligation of such third parties to refrain from approaching or contacting these hard-won clients. These prohibitions may be extended to suppliers.
In addition to safeguarding our clients and suppliers, it is necessary to protect our key employees, who hold sensitive information about our company and know the most relevant aspects of the business. These clauses are also intended to restrict the hiring, directly or indirectly, and also for a certain period of time, of all or part of our employees, helping to preserve a company’s workforce and expertise, and discouraging the departure of key employees to competitors.
Penalty clauses
As we have seen, non-competition and non-solicitation clauses are crucial instruments for building secure and stable trade relations, but what happens if they are violated?
Including these mechanisms without establishing a significant contingency for non-compliance would leave our legal position very unprotected. It is therefore necessary to regulate a significant financial consequence for the third party that breaches them, which involves establishing a penalty clause, with a dissuasive purpose, in our contracts.
Thus, by establishing a high financial penalty in our contracts for violating the prohibition of competition or solicitation of clients or employees, we mitigate the risk of non-compliance, as these deter the parties from violating the contractual provisions due to the severe financial consequences of non-compliance, and allow, where appropriate, the damage caused by the violation of the contracts to be repaired.
Consequently, properly regulating mechanisms for the protection of our organisation’s sensitive data through a combination of mechanisms and measures to protect and deter its use, allows us to establish strong and secure partnerships that benefit all parties involved.
Do you need advice? Access our area related to protection mechanisms in cooperation with third parties: Commercial and Corporate Law