When a company terminates the employment or partnership of certain partners and employees of the company and the management understands that the terminated partners or employees had very important role in the organization and if they decide to use the information outside the company, this can create some problems. In order to make sure that when a person leaves the company, he won’t use or disclose the particulars about the business with other companies or employers i.e. name of the key clients of the company, the terminated person and the company itself signs a contract in which they both agree that the terminated person won’t disclose the information to anyone. This contract is known as the covenant not to use contract.
Brief Description of the Covenant Not to Use Contract:
In order to understand this contract and its importance, suppose that you need to terminate employment of one of your managers in the company. If you don’t ask the terminated manager not to share any company related information i.e. names of the important clients or the expiration of agreements with those clients, this can create a big problem for you because the next company the terminated employee joins may want to use this information for their benefits. This is why when you terminate an important person in your company; you need to make sure that he won’t disclose the important company related information with anyone else. This is why a covenant not to use contract is signed between the company and the terminated person.
In this contract, the person agrees that he won’t disclose or use the certain information about the company with anyone and if he does, the company has the right to take legal action against him. Usually when a company wants a person to sign this contract, it offers something important in exchange too i.e. financial compensation or bonus for the person as a way of appreciating his loyalty with the company. With this contract, the company forces the person not to use certain information outside the company and in case the person violates the contract, the principal party in the contract reserves the right to take legal action against the violator of the contract i.e. file a case against him or ask for financial compensation etc.
Key elements to include in the Covenant Not to Use Contract:
- Name of the company or the principal party who is signing the contract
- Name of the company/employees or partners who will sign the contract as secondary party
- Date when the contract is being signed and the date when the contract will be effective
- Sworn statement by the secondary party of non disclosure
- Specific reasons explained by the principal party for signing the contract
- Specific geographical area for effectiveness of this contract
- Compensation for the non competing party
- Clauses of the contract
- Expiration or validity of the contract
- Termination of the contract
- Signature of both parties and the witnesses
Here is preview of a Free Sample Covenant Not to Use Contract Template created as fill-able PDF Form,
Here is download link for this Covenant Not to Use Contract Template,