This liability clause requires one or both parties to conduct a periodic review or audit of restrictive covenants contained elsewhere in the contract to assess their continued validity, enforceability, and appropriateness. Restrictive covenants are contractual promises that limit a party's freedom to act in certain ways—commonly including non-compete, non-solicitation, and confidentiality obligations. A "Restrictive Covenant Review" clause typically mandates that the parties examine these covenants at specified intervals (e.g., annually or upon certain triggering events) to determine whether they remain reasonable in scope, duration, and geographic reach given changing business circumstances. This review process helps ensure that the restrictions remain enforceable under applicable law, as courts in many jurisdictions will strike down or modify covenants that are deemed unreasonable or overly burdensome.
The clause matters because restrictive covenants are subject to strict judicial scrutiny in most jurisdictions, and what was reasonable at contract inception may become unreasonable as the business evolves. By building in a review mechanism, the parties demonstrate good faith and create a record of their intent to maintain only reasonable restrictions. This can strengthen enforceability if a dispute arises. Additionally, the review process allows parties to adjust covenants proactively rather than discovering enforceability problems only when litigation occurs. However, this clause can also create administrative burden and may inadvertently create liability if a party fails to conduct the required review or discovers problems but fails to address them.
If you are the party seeking to enforce restrictive covenants, include clear procedures for how and when reviews will occur, who is responsible for initiating them, and what documentation must be maintained. Specify that reviews are for informational purposes and do not constitute a waiver of the covenants or an admission that they are unenforceable. If you are the restricted party, use this clause as an opportunity to negotiate for automatic sunset provisions or to establish a mechanism for challenging covenants that become unreasonable. Ensure the clause does not create an affirmative obligation to modify or eliminate covenants simply because they are reviewed—the review should be a tool for assessment, not automatic amendment. Consider engaging legal counsel in the review process to ensure compliance with current law.
Frequently Asked Questions
What does this clause mean in simple terms?
This liability clause requires one or both parties to conduct a periodic review or audit of restrictive covenants contained elsewhere in the contract to assess their continued validity, enforceability, and appropriateness. Restrictive covenants are contractual promises that limit a party's freedom to act in certain ways—commonly including non-compete, non-solicitation, and confidentiality obligations.
Why should I care about this clause?
A "Restrictive Covenant Review" clause typically mandates that the parties examine these covenants at specified intervals (e.g., annually or upon certain triggering events) to determine whether they remain reasonable in scope, duration, and geographic reach given changing business circumstances. This review process helps ensure that the restrictions remain enforceable under applicable law, as courts in many jurisdictions will strike down or modify covenants that are deemed unreasonable or overly burdensome.
What are my options?
The clause matters because restrictive covenants are subject to strict judicial scrutiny in most jurisdictions, and what was reasonable at contract inception may become unreasonable as the business evolves. By building in a review mechanism, the parties demonstrate good faith and create a record of their intent to maintain only reasonable restrictions.
How does this affect small businesses?
This can strengthen enforceability if a dispute arises. Additionally, the review process allows parties to adjust covenants proactively rather than discovering enforceability problems only when litigation occurs.